BC Hydro takes this opportunity to raise the following two matters.

Transcription

1 Tom A. Loski Chief Regulatory Officer Phone: 0--0 Fax: 0--0 September, 0 Ms. Erica Hamilton Commission Secretary British Columbia Utilities Commission Sixth Floor 00 Howe Street Vancouver, BC VZ N Dear Ms. Hamilton: RE: British Columbia Utilities Commission (BCUC or Commission) British Columbia Hydro and Power Authority (BC Hydro) (0 RDA, Application) BC Hydro writes to file its 0 RDA pursuant to sections ()(a) and of the Utilities Commission Act. The 0 RDA is filed in compliance with Direction of BCUC Order No. G--. The 0 RDA contains: BC Hydro s F0 Cost of Service study; BC Hydro s proposals for the default Residential, Small General Service, Medium General Service, Large General Service and Transmission Service rates; and BC Hydro s proposals for Transmission Service rate options. BC Hydro takes this opportunity to raise the following two matters. Requested Orders and Suggested Review Processes Section.. of the 0 RDA provides a description of the main elements of the four requested orders. Copies of the four requested orders are found at Appendix A-A to Appendix A-D of the Application. Sections.. and.. of the Application contain BC Hydro s suggested review processes for the 0 RDA: Section.. of the Application sets out the suggested review processes for all 0 RDA matters except one, which is the subject of section.. of the Application; Section.. of the Application relates to BC Hydro s requested final order for approval of amendments to Rate Schedules (RS) 00/0/0/ and RS 00/0/0/ to change the pricing for customers without historical baselines from per cent of monthly consumption billed at the Part energy rates and per cent of monthly consumption billed at the Part energy rates (referred to as / Pricing in the Application) to 00 per cent of the monthly consumption billed at the Part energy rate (00 per cent Part Pricing) effective January, 0. British Columbia Hydro and Power Authority, Dunsmuir Street, Vancouver BC VB R

2 September, 0 Ms. Erica Hamilton Commission Secretary British Columbia Utilities Commission (0 RDA, Application) Page of Residential Inclining Block Rate Report to the Government of British Columbia By letter dated August, 0 (Commission RIB Report Methodology Letter; Exhibit B- in the BCUC RIB Rate Report proceeding), the Commission requested that BC Hydro provide its submissions to the Commission by September 0, 0 on: methodologies for the report BC Hydro will submit to the Commission on the five questions posed by the Minister of Energy and Mines in his letter of July, 0 (Minister RIB Report Letter); any other issues with the RIB rate that have not previously been adequately addressed but should be reported on in BC Hydro s report to the Commission and the Commission s report to the Government; and comments on the Commission s proposed process and suggested timing. Consistent with the Minister RIB Report Letter, which provides that the Commission should use the 0 RDA review process to collect information for the Commission s report to Government, BC Hydro provides its submissions concerning the Commission RIB Report Methodology Letter in sections. and. of the 0 RDA. For further information, please contact Gordon Doyle at 0-- or by at bchydroregulatorygroup@bchydro.com. Yours sincerely, Original signed Tom Loski Chief Regulatory Officer cg/af Enclosure Copy to: BC Hydro Workshop Invitation List

3 Summary Table of Contents Chapter. Introduction. Introduction, Purpose of Application and Orders Sought Purpose of Application Chapter Structure Orders Sought The Applicant Relationship of Rate Design to BC Hydro s Revenue Requirement and Integrated Resource Plan Rate Design Terminology Rate Design Priorities and RDA Modules BC Hydro s Rate Priorities Application as Foundation and RDA Modules Proposed Regulatory Review Process for Application and Communications Proposed Regulatory Review Process for Application Except for Medium General Service and Large General Service 00 per cent Part Pricing Proposed Regulatory Review Process for Medium General Service and Large General Service 00 per cent Part Pricing Communications Structure of Application Stakeholder Engagement and Consideration Memos Minister Residential Inclining Block Rate Letter Information Submitted with Round IR Responses... - Chapter. Stakeholder Engagement and Rate Design Evaluation Methodology. Introduction and Chapter Structure Three Main Inputs Legal Regime Rate-Setting under the Utilities Commission Act Clean Energy Act Direction No., the Heritage Contract and Rate Rebalancing Special Direction No Rate Design Application 0 Page i

4 Summary Table of Contents.. Government Policy Postage Stamp Rates Mandatory Residential and Commercial Time of Use Rates NTL and LNG Rates Energy Plan Direction No., the RS Tier 0/0 Split and RS Stakeholder Engagement Participant Funding Topic-Specific Workshops Customer Focus Group Sessions Face-to-Face Meetings Other Public Engagement Streams: Residential E-Plus Customers Other Public Engagement Streams: Information Sessions Context for Application Regulatory Context: Prior Commission RDA and Rate Structure Decisions and the 0 Industrial Electricity Policy Review RDA Industrial Service Options Application Heritage Contract and TSR Stepped Rates Inquiry Transmission Service Rate Application Rate Design Application Residential Inclining Block Rate LGS and MGS Industrial Electricity Policy Review Current Environment Context Smart Meter Infrastructure Energy Long-Run Marginal Cost Capacity Long-Run Marginal Cost Rate Assessment Methodology Bonbright Criteria Application of Bonbright Criteria and Stakeholder Input Bonbright Criteria Weighting... - Rate Design Application 0 Page ii

5 Summary Table of Contents.. Jurisdictional Reviews Cost of Service Residential and General Service Rates Transmission Service Rates Rate Modelling Use of External Experts Scoping... - Chapter. Cost of Service. Introduction and Structure of Application F0 Cost of Service Study F0 Cost of Service Study Proposal Structure of Chapter Fiscal 0 Cost of Service Study Three Step Process Base Year (F0) Categories of Cost of Service: Embedded and Marginal Fiscal 0 Cost of Service Study Development Conclusions from COS Consultants Methodology Review F0 Cost of Service Study and 00 Rate Design Application Decision Directions Existing Rate Classes Load Data Functionalization Generation Transmission Distribution Customer Care Functionalization Procedure and the Revenue Requirement Information Technology Transmission and Distribution Costs Demand Side Management Regulatory Accounts Classification Generation: Heritage Hydro Generation: Heritage Thermal Generation: Independent Power Producers Generation: Demand Side Management Powerex Net Income Transmission... - Rate Design Application 0 Page iii

6 Summary Table of Contents.. Distribution Smart Meter Infrastructure Customer Care Allocation Direct Assignment Generation Energy Distribution losses Transmission losses Generation Demand and Transmission Distribution Customer Care Summary of F0 Cost of Study Methodology Changes, Rate Class Revenue to Cost Ratios and Rate Class Cost Classification... - Chapter. Rate Class Determination. Introduction and Chapter Structure Residential Rate Class Dwelling Type and Heating Type Residential E-Plus Customers General Service Rate Classes Small General Service Medium General Service/Large General Service Existing LGS/MSG Breakpoint Potential Extra Large General Service Class Re-Merging the Medium General Service and Large General Service Rate Classes Segmenting Municipalities, Universities, School Boards and Hospitals Transmission Service Rate Class BC Hydro Assessment and Stakeholder Comment BC Hydro Proposal Irrigation Rate Class Street Lighting... - Chapter. Residential Rate Design. Introduction and Chapter Structure Residential Default Rate BC Hydro s Preferred Rate: Residential Inclining Block Rate... - Rate Design Application 0 Page iv

7 Summary Table of Contents.. Background RIB Rate Background Residential Class Characteristics Residential Inclining Block Rate Evaluation Report Residential Default Rate: Residential Inclining Block Rate and Alternatives Reviewed Flat Rate Three Step Rate BC Hydro Proposal for Residential Default Rate and Stakeholder Engagement Alternative Means of Delivering Residential Inclining Block Rate F0-F0 Pricing Principles Basic Charge Cost Recovery Increase Minimum Charge Step /Step Threshold Residential Dual Fuel Interruptible (E-Plus) Rate BC Hydro s Preferred Residential E-Plus Rate Design Background Options Reviewed BC Hydro Proposal and Stakeholder Engagement Low Income Rate Methodologies for Minister Residential Inclining Block Rate Letter Definition of Low Income Customers Leveraging BC Hydro s Residential End-Use Study to Inform Low Income Analytics Estimated Incidence of Low Income BC Hydro Customer Households Other LICO Definitions considered BC Hydro Residential Rate Modelling for Stakeholder Engagement Defining Factors Leading to High Energy Use Approach to Address Minister Residential Inclining Block Rate Letter BC Hydro Residential Demand Side Management Programs BC Hydro s Existing Residential Demand Side Management Programs BC Hydro s Existing Residential Low Income Demand Side Management Programs... - Rate Design Application 0 Page v

8 Summary Table of Contents Chapter. General Service Rate Design. Introduction and Chapter Structure Summary of BC Hydro Proposals Summary of Stakeholder Engagement and Other Inputs Chapter Structure Small General Service BC Hydro s Small General Service Proposal Background Small General Service Rate and Options Reviewed SGS Rate Structure SGS Basic Charge Cost Recovery BC Hydro Proposal and Stakeholder Engagement Medium General Service BC Hydro s Medium General Service Proposal Background Existing MGS Energy Rate Existing MGS Demand Charge MGS Customer Characteristics MGS Two-Part Energy Rate Evaluation Reports Methodology Results Options Reviewed Alternatives Development Screening of Alternatives and Stakeholder Engagement BC Hydro Proposal and Stakeholder Engagement Bill Impacts under BC Hydro s Proposed MGS Rate Structure MGS Demand Sensitivity Rate Structure ( per cent Recovery) Large General Service BC Hydro s Large General Service Proposal Background Existing LGS Energy Rate Existing LGS Demand Charge LGS Customer Characteristics LGS Two-Part Energy Rate Evaluation Reports Methodology Results... - Rate Design Application 0 Page vi

9 Summary Table of Contents.. Options Reviewed Alternatives Development Screening of Alternatives and Stakeholder Engagement BC Hydro Proposal and Stakeholder Engagement LGS Flat Energy Rate LGS Flat Demand Charge and Per Cent Recovery of Demand-related Costs Illustrative Simulations Proposed LGS Rate Structure ( Per Cent Demand cost recovery) LGS Demand Sensitivity Rate Structure (0 Per Cent Recovery) Transition Analysis for Medium General Service and Large General Service Proposals Medium General Service Large General Service Requested Order for the LGS and MGS New Account Rule Three Matters Associated with Medium General Service and Large General Service Proposals Tariff Supplement No Medium General Service and Large General Service Control Groups Corix and Rate Schedule xx Rate Schedule Background BC Hydro Proposal and Stakeholder Engagement... - Chapter. Transmission Service Rate Design. Introduction and Structure of Chapter Summary of BC Hydro Proposals Summary of Stakeholder Engagement and Other Inputs Chapter Structure Rate Schedule : Default Transmission Service Stepped Rate Commission Jurisdiction and Scope of RS Review Tier and Tier Energy Rates: Proposed Pricing Principles for F0 to F Background Options Reviewed... - Rate Design Application 0 Page vii

10 Summary Table of Contents... BC Hydro Proposal and Stakeholder Engagement Revenue Neutrality Options Reviewed BC Hydro Proposal and Stakeholder Engagement Demand Charge Options Reviewed BC Hydro Proposal and Stakeholder Engagement Monthly Minimum Charge Existing and Potential Transmission Service Rate Options Existing Rate Option: Rate Schedule Background BC Hydro Proposal and Stakeholder Engagement Existing Rate Options: Rate Schedule Background BC Hydro Proposal and Stakeholder Engagement Potential Rate Options Rejected by BC Hydro: Retail Access and Real Timing Pricing Retail Access Real Time Pricing Proposed Freshet Rate Pilot Key Objectives and System Context Market Prices and the Tier Rate Overview of the Proposed Rate Benefits of the Rate Types of Incremental Load and Load Shifting Evaluation Criteria and Reporting Two Existing Self-Generation Rates BC Hydro Proposal Rate Schedule : IPP Station Service Background BC Hydro Proposal and Stakeholder Engagement Rate Schedule 0: Standby and Maintenance Background... - Rate Design Application 0 Page viii

11 Summary Table of Contents... BC Hydro Proposal and Stakeholder Engagement Rate Schedule : Rate for Exempt Customers Background and Commission Jurisdiction BC Hydro Proposal and Stakeholder Engagement... - Chapter. Electric Tariff Terms and Conditions. Introduction and Chapter Structure Summary of Terms and Conditions Assessment Process Structure of Chapter Proposed Review of Standard Charges Between Rate Design Applications Electric Tariff Standard Charges Minimum Connection Charges Minimum Reconnection Charges Late Payment Charge Returned Payment Charge Account Charge Proposed Meter Test Charge Other Miscellaneous Standard Charges Collection Charge DataPlus Service Credit Card Payment Security Deposit Conditions for Assessing a Security Deposit Amount of the Security Deposit Miscellaneous Terms and Conditions Amendments Potential Low Income Customer Terms and Conditions Engagement with BCOAPO OEB Low Income Customer Rules Jurisdictional Assessment Review of Business Case Background to Business Case: Measures In Place and Proposed Without Low Income Terms and Conditions Existing Measures Proposed 0 RDA Measures Work with Ministry of Social Development and Social Innovation Business Case... - Rate Design Application 0 Page ix

12 Summary Table of Contents List of Figures Chapter. Figure - Figure - Stakeholder Engagement and Rate Design Evaluation Methodology Energy LRB: Before Implementation of 0 IRP Recommended Actions... - Energy LRB: After Implementation of 0 IRP Recommended Actions... - Chapter. Cost of Service Figure - Cost Allocation Methodology... - Chapter. Rate Class Determination Figure - Load Factor Ranges for General Service Customers... - Figure - Coincident Peak $/kw Cost by Segment... - Figure - Cents per kwh Cost by Segment... - Figure - Re-Merged MGS Bill Impacts... - Figure - Re-Merged LGS Bill Impacts... - Figure - Irrigation Rate Class Peak Profile... - Chapter. Residential Rate Design Figure - F0 Residential Accounts... - Figure - Average Residential Class Consumption by Month, F0-F0 (GWh)... - Figure - Total Consumption by Region (GWh)... - Figure - Customer Accounts by Region... - Figure - Total Consumption by Dwelling Type (GWh) Figure - Customer Accounts by Dwelling Type... - Figure - Customer Accounts by Heating Type... - Figure - Proportion of Low Income Customer Accounts... - Figure - Proportion of Low Income, Electrically Heated Customer Accounts... - Figure -0 Total Consumption by Household Size (GWh)... - Figure - Customer Accounts by Household Size... - Figure - Consumption Distribution of Select Residential Customer Segments, 0th to 0th Percentile of Annual Consumption in F Figure - Bill Impact vs Annual Consumption for Flat Rate in F Rate Design Application 0 Page x

13 Summary Table of Contents Figure - Bill Impact Box-Plot for Flat Rate in F Figure - Comparison of RIB Rate to Three Step A... - Figure - Bill Impact vs Annual Consumption for Moving to the Three Step A RIB Rate in F Figure - Bill Impact Box-Plot for Moving to the Three Step A RIB Rate in F Figure - Requested RIB Rate Pricing Principle (Option ), F0-F Figure - Pricing Principle Option, F0-F Figure -0 Bill Impact vs Annual Consumption for Option of the RIB Rate in F Figure - Cumulative Bill Impact vs Annual Consumption for Option of the RIB Rate in F Figure - Cumulative Bill Impact vs Annual Consumption for Option of the RIB Rate in F Figure - Bill Impact Box-Plot for Moving to the Option of the RIB Rate in F Figure - Cumulative Bill Impact Box-Plot for Moving to the Option of the RIB Rate in F Figure - Median Consumption per Month... - Figure - Step Exposure, all Accounts... - Figure - Step Exposure, Low Income... - Figure - kwh Step/Step Bill Impact Distribution... - Figure - kwh Step/Step Bill Impact Distribution... - Figure -0 DSM Regulation Amendments and ECAP Participants... - Figure - DSM Regulation Amendments and ECAP Participants... - Chapter. General Service Rate Design Figure - F0 General Service Energy Sales (GWh)... - Figure - Number of General Service Accounts (Ending number, F0)... - Figure - Median SGS Consumption by Site Type... - Figure - MGS -Part Energy Rate Structure... - Figure - Median MGS Consumption by Site Type... - Figure - F0 Bill Impacts less RRA BC Hydro MGS Proposal (Demand Per Cent Recovery)... - Figure - F0 Bill Impacts less RRA MGS Demand Sensitivity ( Per Cent Recovery)... - Figure - Illustrated LGS -Part Energy Rate Structure... - Figure - Median LGS Consumption by Site Type... - Rate Design Application 0 Page xi

14 Summary Table of Contents Figure -0 F0 Bill Impacts less RRA for LGS Flat Energy and Flat Demand, Demand Cost Recovery = ~0 Per Cent... - Figure - F0 Bill Impacts less RRA for LGS Flat Energy and Flat Demand, Demand Cost Recovery = ~ Per Cent... - Figure - F0 Bill Impacts less RRA BC Hydro LGS Proposal (Demand Per cent Recovery)... - Figure - F0 Bill Impacts less RRA LGS Demand Sensitivity (0 Per Cent Recovery)... - Figure - No MGS Proposed Rates Phase-In... - Figure - Three Year MGS Proposed Rates Phase-In... - Figure - No LGS Preferred Rates Phase-In... - Figure - Three Year LGS Preferred Rates Phase-In Chapter. Transmission Service Rate Design Figure - F0 Transmission Service Voltage Energy Sales... - Figure - System Inflows... - Figure - Five-Year Average of Mid-C Market Prices (00 0) Updated with 0 Prices to the End of July Figure - HLH Differentials between Tier Rate and $CDN Mid-C Price... - Figure - LLH Differentials between Tier Rate and $CDN Mid-C Price... - Figure - Gains from an Incremental MW of Load Over Freshet Period List of Tables Chapter. Introduction Table - Current BC Hydro Rate Classes... - Table - Three BC Hydro Prioritized Rate Design Criteria Table - Proposed Regulatory Review Process for Application Except for Medium General Service and Large General Service 00 per cent Part Pricing... - Table - Proposed Regulatory Review Process for Medium General Service and Large General Service 00 per cent Part Pricing... - Chapter. Stakeholder Engagement and Rate Design Evaluation Methodology Table - 0 RDA Topic-Specific Workshops... - Table - Relevant Commission Heritage Contract Inquiry Recommendations and B.C. Government Responses... - Rate Design Application 0 Page xii

15 Summary Table of Contents Table - Relevant IEPR Task Force Recommendations and B.C. Government Responses... - Table - Market Prices, January-July Table - Inflation Adjusted Range in Energy LRMC for Transmission Service... - Table - Inflation Adjusted Range in Energy LRMC for Distribution Service... - Table - Bonbright Criteria and Application for Rate Design Evaluation... - Chapter. Cost of Service Table - Summary of 00 RDA-Related COS Methodology Changes Table - IT Functionalization... - Table - Functionalization of Rate Smoothing Account... - Table - Functionalization of Interest on Regulatory and Deferral Accounts... - Table - Summary of F0 COS Study Methodology Changes... - Table - R/C Ratios... - Table - F0 Cost of Service Study Cost Classification... - Chapter. Rate Class Determination Table - Expanded Canadian Jurisdictional Review of General Service Segmentation... - Table - Customer Load Characteristics Table - Summary of FortisBC/New Westminster Characteristics and R/C Ratios Table - Summary of New Westminster/FortisBC Segmentation Pros and Cons Table - Street Lighting Rate Schedules and Ownership... - Table - Street Lighting R/C Ratios... - Chapter. Residential Rate Design Table - Existing RIB Rates (F0)... - Table - Summary of 0 RIB Re-Pricing Directions... - Table - Bill Impact Distribution by Customer Segment for Flat Rate in F Table - Bill Characteristics for Flat Rate in F Table - Three Step Rate Options... - Table - Bill Characteristics Moving to the Three Step A RIB Rate in F Table - RIB Rate Bonbright Assessment Rate Design Application 0 Page xiii

16 Summary Table of Contents Table - Bill Impacts under Pricing Principle Option, F0-F Table - Bill Characteristics for Moving to the Option of the RIB Rate in F Table -0 Bill Characteristics for Moving to the Option of the RIB Rate in F Table - Median Consumption per Month... - Table - Summary of 00 RDA Decision Residential E-Plus Directions Table - Residential E-Plus R/C Ratios... - Table - Low Income Status for the 0 Tax Year by Region... - Table - Low Income Status for the 0 Tax Year by Housing Type... - Table - Existing BC Hydro Residential DSM Programs... - Table - ESK and ECAP Eligibility Household Incomes... - Chapter. General Service Rate Design Table - Existing SGS Rates (F0)... - Table - Alternative SGS Pricing Table - Annual bill impacts of an increase in the SGS Basic Charge to recover per cent of customer-related costs... - Table - Summary of Relevant Commission Order No. G-0-0 Direction... - Table - Existing MGS Energy Rates (F0)... - Table - Existing MGS Demand Charges (F0)... - Table - MGS Consumption by Site Type... - Table - MGS Accounts by Site Type Table - Alternative MGS Pricing (F0)... - Table -0 Screened-in MGS Alternatives for Stakeholder Engagement... - Table - Summary of F0 demand ratchet charges, MGS and LGS... - Table - MGS Rate Estimates for Rate Structure Transition in F Table - F0 Illustrative Customer Bill BC Hydro MGS Proposal (Demand Per Cent Recovery)... - Table - Existing LGS Energy Rates (F0) Table - LGS Consumption by Site Type... - Table - LGS Accounts by Site Type... - Table - Cumulative Net Evaluated Conservation Savings: Gigawatt Hours per Year... - Table - Alternative LGS Pricing (F0) Table - Screened-in LGS Alternatives for Stakeholder Engagement... - Table -0 LGS Rate estimates given rate structure transition in F Rate Design Application 0 Page xiv

17 Summary Table of Contents Table - F0 Illustrative Customer Bill BC Hydro LGS Proposal (Demand Per Cent Recovery)... - Chapter. Transmission Service Rate Design Table - Existing RS Rates (F0)... - Table - Inflation Adjusted Range in Energy LRMC... - Table - F0 to F0 Pricing Principle Options Table - Existing RS Rates (F0)... - Chapter. Electric Tariff Terms and Conditions Table - Summary of Proposed Standard Charges... - Table - Summary of Proposed Standard Charges... - Table - Proposed Minimum Reconnection Charges... - Table - Canadian Electric Utility Late Payment Charges... - Table - BC Hydro Late Payment Charge Costs (F0)... - Table - OEB Low Income Terms and Conditions... - List of Appendices Appendix A Appendix A-A Drafts of Requested Orders MGS and LGS New Account / Pricing Amendments Appendix A-B RS F0-F0 Pricing Principles; RS Amendments; and Freshet Rate Pilot Appendix A-C Appendix A-D Minimum Reconnection Charges Default Residential, Small General Service, Medium General Service and Large General Service Rates; Residential E-Plus Rate; BC Hydro Owned Street Lighting Rate Class; Electric Tariff Terms and Conditions Appendix B Appendix C Appendix C- Appendix C- Appendix C- Appendix C- Appendix C- Glossary and Abbreviations Appendix C contains all 0 RDA-related stakeholder materials relating to Module grouped by subject matter Scope of 0 RDA Cost of Service Residential Rates and Electric Tariff Terms and Conditions General Service Rate Design Transmission Service Rates Rate Design Application 0 Page xv

18 Summary Table of Contents Appendix D Appendix D-A Appendix D-B Appendix D- Appendix E Appendix F Appendix F-A Appendix F-B Appendix F-C Appendix F-D Appendix F-E Appendix G Appendix G-A Appendix G-B Appendix H Appendix H-A Appendix H-B External Expert Curriculum Vitae (CV): CV of Richard W. Cuthbert CV of Dr. Ren Orans Energy + Environmental Economics (E) Literature Review for the Relative Elasticities of BC Hydro Small and Large Residential Customers ( Will Extending the RIB Rate Encourage Conservation? ) F0 Cost of Service Model and Schedules Rate Schedules: RS xx and RS xx / Pricing Amendment RS Freshet Energy RS Modified Demand RS 0 Duel Fuel RS xx and RS xx MGS Proposal and LGS Proposal, and associated amendments to RS xx (GS - Control Group Proposal) and elimination of RS xx Electric Tariff Terms and Conditions Proposed Electric Tariff Terms and Conditions [Note to reader: the updated Terms and Conditions will be submitted with BC Hydro s responses to Round IRs] Derivation of proposed changes to the Standard Charges Residential, General Service and Freshet Rates Modelling: Residential and General Service Rate Modelling Assumptions Example of Freshet Rate Billing Rate Design Application 0 Page xvi

19 Chapter Introduction

20 Chapter - Introduction Table of Contents. Introduction, Purpose of Application and Orders Sought Purpose of Application Chapter Structure Orders Sought The Applicant Relationship of Rate Design to BC Hydro s Revenue Requirement and Integrated Resource Plan Rate Design Terminology Rate Design Priorities and RDA Modules BC Hydro s Rate Priorities Application as Foundation and RDA Modules Proposed Regulatory Review Process for Application and Communications Proposed Regulatory Review Process for Application Except for Medium General Service and Large General Service 00 per cent Part Pricing Proposed Regulatory Review Process for Medium General Service and Large General Service 00 per cent Part Pricing Communications Structure of Application Stakeholder Engagement and Consideration Memos Minister Residential Inclining Block Rate Letter Information Submitted with Round IR Responses... - List of Tables Table - Current BC Hydro Rate Classes... - Table - Three BC Hydro Prioritized Rate Design Criteria Table - Proposed Regulatory Review Process for Application Except for Medium General Service and Large General Service 00 per cent Part Pricing... - Table - Proposed Regulatory Review Process for Medium General Service and Large General Service 00 per cent Part Pricing... - Page -i

21 Chapter - Introduction 0. Introduction, Purpose of Application and Orders Sought British Columbia Hydro and Power Authority (BC Hydro) files its 0 Rate Design Application (0 RDA, Application) with the British Columbia Utilities Commission (BCUC or Commission) pursuant to subsection ()(a) and section of the Utilities Commission Act (UCA) to request orders as summarized in section.. below... Purpose of Application This is BC Hydro s first comprehensive RDA since 00, and only the third such application in BC Hydro s history (the first RDA was filed in ; the regulatory context, including relevant prior Commission decisions, is summarized in section.., while the current environment context is addressed in section.. of the Application). The purpose of the Application is to update BC Hydro s default rate structures and Electric Tariff Terms and Conditions to reflect current conditions. (The term default rate is described in section. below). Five factors underpin the requests made in the Application: 0 First, pursuant to Order No. G-- the Commission required an updated RDA to be filed in Fiscal (F) 0. As part of this process it was essential for BC Hydro to evaluate cost allocation and rate structures; Second, customer expectations of BC Hydro are increasing, and BC Hydro is looking for ways to make it easier for customers to do business with BC Hydro. Rates are a core part of overall customer care, and the ability of customers to understand and react to the signals the rates are intended to send is in R.S.B.C., c.; copy available at -c-.html. Reasons.pdf. All years in this Application are stated in fiscal years (F0xx) ending on March, unless otherwise noted. Page -

22 Chapter - Introduction 0 0 BC Hydro s view critical to a positive customer experience. BC Hydro also seeks to achieve an appropriate foundation to later develop rate options for its Residential and General Service customers, as further elaborated below in section... BC Hydro undertook a comprehensive process of customer engagement in preparation for this Application, described in section.. of the Application, and endeavoured to reflect consensus views arising from the stakeholder engagement processes throughout its proposals where those could be discerned; Third, BC Hydro is operating under rate caps set out in Direction No. to the Commission for purposes of BC Hydro s Revenue Requirements Application (RRA) for F0, F0 and F0 of per cent,. per cent and per cent respectively. In addition, the British Columbia (B.C.) Government conveyed a focus on Transmission Service customer rate design through the 0 Industrial Electricity Policy Review (IEPR) task force process and its response. BC Hydro is to examine ways to provide its Transmission Service customers with more options to reduce their electricity costs (refer to section... of the Application). The rate caps are described in section. below; Fourth, a number of elements, including a change to the regulatory regime relating to self-sufficiency and a lower customer demand (referred to as load ) forecast, have reduced forecasted energy and capacity need, and resulted in a lower energy Long-Run Marginal Cost (LRMC) which reflects BC Hydro s cost B.C. Reg. /0; The Electricity Self-Sufficiency Regulation, B.C. Reg. /00, as amended by Order in Council (OIC) No. 0 (B.C. Reg. /0), requires BC Hydro to achieve self-sufficiency by 0 and each year after that, assuming its Heritage hydroelectric resources are capable of producing no more than what they can produce under average water conditions ; copy at Until the 0 amendments, the Electricity Self-Sufficiency Regulation required BC Hydro to plan for self-sufficiency based on an assessment of what the Heritage hydroelectric resources are capable of generating under the most adverse sequence of stream flows between October 0 and September 000, known as critical water conditions. The 0 change in planning from critical water to average water conditions increases the combined reliance on the Heritage hydroelectric system non-firm energy backed by market reliance in F0 by about,00 gigawatt hours per year (GWh/year), thus reducing the need for new energy resources. Self-sufficiency is explained in section... of the Application in the context of BC Hydro s energy LRMC. Page -

23 Chapter - Introduction 0 to acquire new B.C. based Demand Side Management (DSM) and/or supply-side resources as described in BC Hydro s 0 Integrated Resource Plan (IRP). Refer to section... of the Application; and Fifth, BC Hydro proposed and after Commission approval implemented a number of new rate designs between 00 and 0, including the default Transmission Service Stepped Rate (Rate Schedule (RS) ), the Residential Inclining Block (RIB) rate, and the Medium General Service (MGS) and Large General Service (LGS) two part energy rates. These rate initiatives responded to B.C. Government policy imperatives contained in the 00 Energy Plan to among other things explore the use of rates to assist with achieving aggressive conservation goals (the 00 Energy Plan is described in section... of the Application). In light of the reduced forecasted energy and capacity need, and the various evaluations of these rate initiatives as referenced in Chapters, and, this is an apt time to take stock, and consolidate where appropriate (in BC Hydro s view, this applies to RS and the default RIB rate) and amend where appropriate (this is the case for the MGS and LGS two part energy rates)... Chapter Structure The remainder of this Chapter is structured as follows: 0 Section.. summarizes BC Hydro s requested orders; Section. provides an overview of BC Hydro as applicant; Section. examines the relationships between rate design and BC Hydro s RRA and 0 IRP; Section. sets out definitions of commonly used rate design terminology; Section. discusses BC Hydro s rate design priorities and how the Application sets a foundation for future rate design initiatives; Page -

24 Chapter - Introduction Section. contains BC Hydro s suggestions for the 0 RDA regulatory review process; and Section. concludes this Chapter with a road map for the remainder of the Application Orders Sought The ten major elements of the requested orders are summarized and follow the Application chapter structure. Division of Street Lighting Rate Class. A final order approving the division of the existing Street Lighting rate class into two new rate classes: customer-owned Street Lighting and BC Hydro-owned Street Lighting. Note: Currently BC Hydro has a single Street Lighting rate class as noted below in section. and in section. of the Application. BC Hydro submits there is a strong basis for creating a separate rate class for BC Hydro-owned Street Lighting given the significant differences in Revenue to Cost (R/C) ratios between BC Hydro-owned and customer-owned Street Lighting, Commission comments in the 00 RDA decision and other factors. Refer to section. of the Application. This would result in two Street Lighting rate classes: BC Hydroowned Street Lighting and customer-owned Street Lighting rate class. Residential Rates. A final order approving the following pricing principles for RS 0/ for each of F0 to F0 (RIB Pricing Principles): each pricing element of RS 0/ (Step energy rates, Step energy rates and basic charge) will R/C ratios reflect the extent to which BC Hydro is collecting revenue relative to the costs allocated to each rate class. Refer to section.. of the Application. Page -

25 Chapter - Introduction 0 0 increase by the RRA rate increases ordered by the Commission in regard to BC Hydro s revenue requirements on April, 0, 0 and 0. Note: RS 0 is the RIB rate, which is the default Residential rate. RS is the RIB rate for Multiple Residential Service. The RIB rate structure is a twostep inclining block rate with the first step called the Step energy rate and the amount above that the Step energy rate. The RIB rate was implemented on October, 00. The term pricing principles refers to how the RRA rate increases, which are set by the Commission through BC Hydro s RRAs, are applied to each of the RIB rate s pricing elements. By Order No. G-- the Commission approved pricing principles which uniformly increases the three pricing elements of the RIB rate by the amount of the approved F0/F0 RRA rate increases. The terms energy rate and basic charge are explained in section. below. The current RS 0 and RS pricing principles expire on March, 0. BC Hydro s proposed RIB Pricing Principles for RS 0 and RS for F0-F0 continue with the Order No. G-- pricing principles as described in section... of the Application. BC Hydro expects to be filing its F0 RRA in late February 0 and at that time will seek interim rate orders, to be effective April, 0, including an interim order increasing the RIB rate pricing elements in accordance with the requested RIB Pricing Principles described above.. A final order approving new terms and conditions in RS 0 that enable BC Hydro to interrupt the service (Residential E-Plus Amendment) as illustrated in Appendix F-D effective upon the date of the Commission order. Note: RS 0 Residential Service Duel Fuel is an interruptible service (closed to new customers) commonly referred to as the Residential E-Plus rate under which customers pay a discounted rate on condition of having an Page -

26 Chapter - Introduction 0 0 alternative fuel back-up heating system. BC Hydro is proposing to continue with RS 0 with amendments to make the Residential E-Plus rate practically interruptible. Refer to section. of the Application. A black-lined copy of the current RS 0 showing the proposed changes is included in Appendix F-D for illustrative purposes. BC Hydro will address RS and RS Exempt Residential Service; and RS 0 and RS Residential Service Zone II as part of Module ; refer to section. of the Application. Small General Service rates. A final order effective April, 0 approving a one-time increase to the RS 00, RS 0, RS 0 and RS (RS xx) basic charge that would allow the basic charge to recover approximately per cent of BC Hydro s customer-related costs attributable to the Small General Service (SGS) rate class in the F0 Cost of Service (COS) study, and a one-time offsetting decrease in the energy rate set to maintain forecast revenue neutrality based on the SGS revenue target calculated using any applicable rate increases arising from the F0 RRA (SGS Proposal). Note: BC Hydro is not proposing any changes to the rate structures for customers who take service under RS xx, which customers make up the SGS rate class, except a one-time increase to the basic charge cost recovery of customer-related costs from about per cent to per cent, offset by a onetime decrease in the energy rate to maintain forecast revenue neutrality. The current SGS rate design consists of a flat energy rate and a basic charge. Refer to section.. of the Application. Rate design addresses the allocation of the costs to different rate classes through COS studies; BC Hydro s F0 COS is described in Chapter of the Application. Revenue neutrality is discussed in section. below. Page -

27 Chapter - Introduction 0 0 Medium General Service rates. A final order effective April, 0 approving a new rate for customers who take service under RS 00, RS 0, RS 0 and RS (RS xx) with a flat demand charge set to recover approximately per cent of BC Hydro s demand-related costs attributable to the MGS rate class in the F0 COS study and a flat energy rate set to maintain forecast revenue neutrality based on the MGS revenue target calculated using any applicable rate increases arising from the F0 RRA (MGS Proposal). Note: BC Hydro is applying to amend the rates for customers who take service under RS xx, which customers make up the MGS rate class. The new MGS rate structures would consist of a flat energy rate, a flat demand charge, a basic charge and a monthly minimum charge. This is one of the most substantial changes BC Hydro is proposing in the 0 RDA. The current MGS rate design consists of a two-part energy rate implemented in stages with all MGS customers transitioned to the existing two-part rate by April, 0, a three step demand charge (and a basic charge and monthly minimum charge). Blacklined copies of the current RS xx showing the proposed changes is included in Appendix F-E for illustrative purposes. BC Hydro is also applying for one-time increase to the MGS demand charge recovery of demand-related costs from approximately per cent to per cent, and a flat energy rate to maintain forecast revenue neutrality. The term demand charge is explained in section. below. BC Hydro proposes a one-step transition from the current MGS rate structure to BC Hydro s proposed MGS rate structure. Refer to sections.. and.. of the Application. Page -

28 Chapter - Introduction 0 0 Large General Service Rates. A final order effective April, 0 approving a new rate structure for customers who take service under RS 00, RS 0, RS 0 and RS (RS xx) with a flat demand charge set to recover approximately per cent of BC Hydro s demand-related costs attributable to the LGS rate class in the F0 COS study and a flat energy rate set to maintain forecast revenue neutrality based on the LGS revenue target calculated using any applicable rate increases arising from the F0 RRA (LGS Proposal). Note: BC Hydro is applying to amend the rates for customers who take service under RS xx, which customers make up the LGS rate class. The new LGS rate structure would consist of a flat energy rate, a flat demand charge, a basic charge and a monthly minimum charge. This is another of the most substantial changes BC Hydro is proposing in the 0 RDA. The current LGS rate design consists of a two-part energy rate implemented on January, 0, a three step demand charge (and a basic charge and monthly minimum charge). Blacklined copies of the current RS xx showing the proposed changes is included in Appendix F-E for illustrative purposes. BC Hydro is also applying for a one-time increase to the LGS demand charge recovery of demand-related costs from approximately 0 per cent to per cent and a flat energy rate to maintain forecast revenue neutrality. BC Hydro proposes a one-step transition from the current LGS rate structure to BC Hydro s proposed LGS rate structure. Refer to sections.. and.. of the Application. There are a number of related approvals BC Hydro seeks as part of the MGS Proposal and LGS Proposal: o Amendments to RS 00/0/0/ (RS xx) eliminating the applicability of the rate to the large and medium general service control Page -

29 Chapter - Introduction 0 0 group of customers (GS - Control Group Proposal). Black-lined copies of the current RSxx showing the proposed changes is included in Appendix F-E; o The elimination of RS 00/0/0/(RS xx) (GS Distribution Utilities Proposal); o The elimination of Tariff Supplement No. (TS) Rules for LGS Prospective Growth Applications (TS Proposal). These respective approval requests are described in section. of the Application. BC Hydro is also requesting a separate final order for approval of amendments to RS xx and RS xx to change the pricing for customers without historical baselines from per cent of monthly consumption billed at the Part energy rates and per cent of monthly consumption billed at the Part LRMC-based energy rates (/ Pricing) to 00 per cent of the monthly consumption billed at the Part energy rate (00 per cent Part Pricing) effective January, 0. This requested order is described further at the end of this section and in section. of the Application. Black-lined copies of the current RS xx and RS xx tariff pages showing the proposed changes are included in Appendix F-A. There would be no need for either / Pricing or 00 per cent Part Pricing if the Commission approves the MGS Proposal and the LGS Proposal, and thus this requested final order would be supplanted by the final order concerning MGS Proposal and the LGS Proposal effective April, 0 if such final order is granted. Transmission Service Rates. A final order approving the following pricing principles for RS for each of F0 to F0: Page -

30 Chapter - Introduction 0 0 For F0, set the Tier rate to the lower end of BC Hydro s energy LRMC and the Tier rate to reflect any RRA rate increase applicable to F0 arising from the F0 RRA according to the bill neutrality approach i.e., 0 per cent of the Tier rate plus 0 per cent of the Tier rate is equal to the flat rate (RS energy rate or the RS Energy Charge A). Other pricing elements (demand charge, energy rate applicable to RS customers that do not have a Customer Baseline Load (CBL) and monthly minimum charge) will increase by the same applicable F0 RRA rate increase; For F0 and F0, each pricing element of RS (Tier energy rate, Tier energy rate, demand charge, energy rate applicable to RS customers that do not have a Customer Baseline Load (CBL) and monthly minimum charge) will increase by the same RRA rate increase ordered by the Commission in regards to BC Hydro s revenue requirements on April, 0 and 0 (collectively, the RS F0-F0 Pricing Principles). Note: RS - Transmission Service Stepped Rate is the default rate for Transmission Service customers implemented on April, 00 pursuant to BCUC Order No. G--0. Energy rates and demand charges are also explained in section. below. The current RS pricing principles expire on March, 0. The RS F0-F0 Pricing Principles are described in section.. of the Application. The RS F0-F0 Pricing Principles continue with the pricing principles implicit in subsection (c) of Direction No. to the Commission, which provides that the Commission must uniformly increase the pricing elements of RS by the amount of the approved F0/F0 RRA rate Copy at G-0-0_BCHydro_TSRA%0Reasons%0for%0Decision.pdf. B.C. Reg. /0; Page -0

31 Chapter - Introduction 0 0 increases, with a one-time F0 adjustment to comply with subsection () of Direction No. to the Commission. Subsection () of Direction No. requires the Commission, in designing rates for BC Hydro s Transmission Service customers, to ensure that those rates are consistent with Recommendation # of the Commission s October 00 Heritage Contract and Stepped Rates Report and Recommendations (Heritage Contract Report). The B.C. Government accepted Recommendation #, which provides that the Transmission Service stepped rate (RS ) should be implemented according to a number of principles, including that the Tier rate should reflect BC Hydro s LRMC. Refer to section... of the Application for an overview of Direction No.. BC Hydro s energy LRMC range is described in section... of the Application. As noted above in respect of the RIB Pricing Principles, BC Hydro expects to be filing its F0 RRA in late February 0 and at that time will seek interim rate orders, to be effective April, 0, including an interim order increasing the RS pricing elements in accordance with the requested RS F0-F0 Pricing Principles described above.. A final order approving a revision to the definition of Availability for clarity and a change in the RS definition of High Load Hours (HLH) to provide BC Hydro discretion to determine the HLH periods that will apply based on a customer location/region which affords BC Hydro the possibility to curtail to alleviate potential local or regional transmission constraints or take advantage of a market opportunity. Note: RS, the Transmission Service - Modified Demand rate, is an interruptible rate. Refer to section.. of the Application. HLH refers to the In the Matter of British Columbia Hydro and Power Authority: An Inquiry into a Heritage Contract for British Columbia Hydro and Power Authority s Existing Generation Resources and Regarding Stepped Rates and Transmission Access, Report and Recommendations, October, 00, section.0, especially pages to ; Page -

32 Chapter - Introduction 0 0 time of day in which peak demand occurs. 0 A black-lined copy of the current RS showing the proposed changes is included in Appendix F-C. BC Hydro is not proposing any changes to the other four existing Transmission Service rates that are within scope for the 0 RDA, namely RS Transmission Service Time of Use (TOU) Rate; RS Transmission Service Rate for Exempt Customers; RS Transmission Service IPP Service Station; and RS 0 - Transmission Service Standby and Maintenance. RS Shore Power Service (Transmission) was approved on June, 0 by BCUC Order No. G-- and therefore is not part of the 0 RDA because of its recent review and approval; refer to section. of the Application.. A final order approving the Transmission Service freshet rate pilot for the period March, 0 to December, 0, identified as RS in Appendix F-B, to be available to Transmission Service customers presently taking service under RS who apply to BC Hydro for this service. BC Hydro has committed to file with the Commission two preliminary evaluation reports by October, 0 and October, 0 respectively, and a final evaluation report by June, 0. Note: The two year freshet rate pilot is a new optional Transmission Service non-firm (interruptible) rate which offers market-priced energy to participating RS customers to encourage such customers to increase electricity consumption during BC Hydro s freshet period of May to July, as BC Hydro has a long-term recurring issue of energy oversupply during this period. The freshet rate pilot is for non-firm service; BC Hydro will agree to provide electricity under 0 Refer to the Glossary and Abbreviations at Appendix B to the Application. Copy at _BCH-Shore-Power- Decision_G--.pdf. Page -

33 Chapter - Introduction 0 0 the freshet rate pilot to the extent it has the energy and capacity to do so. The proposed freshet rate pilot is described in section.. of the Application. BC Hydro is requesting that the Commission approve the freshet rate pilot by February, 0 to ensure BC Hydro has time to implement the Commission decision by March, 0. BC Hydro sees March, 0 as the deadline for participating in Year and March, 0 as the deadline for participating in Year of the two year freshet rate pilot. BC Hydro s proposed regulatory review process in section.. below is designed to ensure the freshet rate pilot is in place prior to the 0 freshet May-July period. The freshet rate pricing will not change during the two year pilot as a result of RRA rate increases. This is because the freshet rate pilot pricing during the HLH and Light Load Hour (LLH) of the freshet period is the greater of the ICE Mid-Columbia (Mid-C) Peak and Mid-C Off-Peak weighted average index price that corresponds to the hour and $0 per kilowatt hour (/kwh), plus a wheeling rate of $ per megawatt hour (/MWh) from Mid-C to the U.S.-B.C. border. Electric Tariff Terms and Conditions 0. A final order effective the date of the order approving the Terms and Conditions of the Electric Tariff attached as Appendix G- to the Application. Note: BC Hydro is proposing to update various Electric Tariff Terms and Conditions of Service (Terms and Conditions) including new Standard Charges contained in section of the Electric Tariff. Minimum Reconnection Charges in section. of the Electric Tariff are part of the Standard Charges and have been the subject of specific stakeholder engagement. BC Hydro Generally speaking, the time of day in which off-peak occurs. Mid-C is a wholesale electricity trading hub located in the United States (U.S.) Pacific Northwest. A link to BC Hydro s current Electric Tariff is Page -

34 Chapter - Introduction 0 seeks approval to revise the Minimum Reconnection Charges effective April, 0; the effective date of the balance of the Terms and Conditions would be on the date of the final order. Proposed changes to Standard Charges, including Minimum Reconnection Charges, are described at section. of the Application. As noted in section.. of the Application, the revised Terms and Conditions, which are administrative in nature, will be filed with BC Hydro s responses to the first round of Information Requests (IRs) as Appendix G-. The scope of 0 RDA Module includes all of the Terms and Conditions with the exception of: section governing Distribution extensions; section. (Resale of Electricity); section 0 concerning Rate Zone IB and Rate Zone II issues; and section. of the Electric Tariff (Transformer Rental Charge). RDA Module will address these topics. Refer to section. below with respect to what RDA Module is to consist of, and to section. of the Application for a more detailed description of the scope of 0 RDA Module review of the Terms and Conditions. Draft forms of the requested orders are attached as Appendix A to the Application: 0 Appendix A-A: MGS and LGS 00 per cent Part Pricing. BC Hydro s suggested regulatory review process for the 00 per cent Part Pricing amendment is set out at section.. below; Appendix A-B: RS F0-F0 Pricing Principles; freshet rate pilot proposal; and RS amendments. BC Hydro s suggested regulatory review process for the RS F0-F0 Pricing Principles, freshet rate pilot proposal and RS amendments is described in section.. below; Appendix A-C: Proposed changes to the Minimum Reconnection Charges. BC Hydro s suggested regulatory review process for Minimum Reconnection Charges is described in section.. below; Page -

35 Chapter - Introduction Appendix A-D: BC Hydro-owned Street Lighting rate class; RIB Pricing Principles; SGS Proposal; MGS Proposal; LGS Proposal; and Terms and Conditions (except the Minimum Reconnection Charges). 0. The Applicant BC Hydro is a Crown corporation established in under the Hydro and Power Authority Act. BC Hydro is the third largest electric utility in Canada with a customer base serving per cent of B.C. s population in a service area that encompasses most of B.C. with the exception of City of New Westminster (New Westminster) and the south-central part of the Province served by FortisBC Inc. (FortisBC). BC Hydro s integrated electric system includes 0 hydroelectric generating facilities, two natural gas-fired generating facilities and a number of independent power producer (IPP) projects with whom BC Hydro contracts. BC Hydro delivers electricity over,000 kilometers of transmission and distribution lines: The transmission system includes facilities used to transmit electricity, usually at voltages greater than kilovolts (kv); The distribution system includes electrical lines, cables, transformers and switches used to distribute electricity from substations to customers, generally at voltages lower than kv. 0 The demand on BC Hydro s system for customers connected to the integrated system or grid in F0 was, megawatts (MW), which includes capacity sales by BC Hydro to other utilities such as New West and FortisBC. The total integrated system gross energy requirement, including sales by BC Hydro to other utilities, was Current version is R.S.B.C, c.; -c-.html. Page -

36 Chapter - Introduction 0 0, GWh. The off-grid Non-Integrated Areas (NIAs) demand adds another GWh resulting in, GWh of total gross requirement.. Relationship of Rate Design to BC Hydro s Revenue Requirement and Integrated Resource Plan BC Hydro s RRAs and rate design are often compared to the making and serving of a pie. A RRA sets a public utility s revenue requirement (or the size of the pie ). The revenue requirement is the amount of revenue to be recovered in rates. Rate design addresses the allocation of the costs to different rate classes through COS studies (refer to section. below for a description of BC Hydro s rate classes). RDAs also set the rate design for collecting each customer s share of the pie served to their rate class. Importantly, this means that BC Hydro through the 0 RDA is not seeking to increase the size of the pie, and a Commission decision on the 0 RDA will not change BC Hydro s total revenue requirement. BC Hydro s F0 revenue requirement has already been determined by the Commission pursuant to BCUC Order No. G--. BC Hydro is planning to submit its next RRA for the F0- F0 test period to the Commission sometime in February 0. BC Hydro s revenue requirement for F0, the most current approved revenue requirement available, is used for the COS study in Chapter of the Application. Section of Direction No. to the Commission provides that the Commission, when setting rates for BC Hydro for F0, F0 and F0 must not allow rates to increase by more than per cent in F0,. per cent in F0 and per cent in F0 on average when compared to the rates for BC Hydro immediately before the increase. These Direction No. -related rate increase figures are commonly referred to as rate caps, and they are used by BC Hydro when modelling various rate NIAs are not interconnected to BC Hydro s main electric system. In BC Hydro s Electric Tariff, NIAs consist of Zone II (Anahim Lake, Atlin, Bella Coola, Dease Lake, Ehlateese, Fort Ware, Haida Gwaii, Hartley Bay, Telegraph Creek District, Toad River and Tsay Keh) and Zone IB (Bella Bella). Refer to Appendix B, which is the Glossary and Abbreviations. Copy available at: G--_BCH-F-- RevenueRequirements.pdf. Page -

37 Chapter - Introduction 0 0 designs to determine customer bill impacts. Refer to Chapters, and of the Application for further detail. Direction No. and the legal context are described in section.. of the Application. BC Hydro prepares IRPs to address questions of how much, when and what resources should be advanced to meet its customers electricity needs. BC Hydro submits its IRPs to the B.C. Minister of Energy and Mines in accordance with section of the Clean Energy Act (CEA) and the B.C. Lieutenant Governor in Council (LGIC) is the body responsible for approving BC Hydro s IRPs pursuant to section of the CEA. BC Hydro s most recent IRP, the 0 IRP, was approved by the LGIC on November, 0. The main link between the 0 IRP and this Application is with respect to BC Hydro s LRMC. LRMC represents the price of the most cost-effective way of satisfying incremental customer demand where existing resources are insufficient to meet that demand, and is used by BC Hydro in rate design applications. Refer to section.. of the Application for a discussion of BC Hydro s energy LRMC and capacity LRMC, and their application to rate design.. Rate Design Terminology BC Hydro s rates determine the amount that is charged to customers for providing them with electricity. This section provides descriptions of rate design concepts used throughout the Application. Appendix B to the Application is a glossary containing additional definitions of rate design elements and concepts. Rate Class Electric utility customers are divided into classes of service or sectors based on consumption levels and patterns, and the associated impact on the utility's costs of providing the service. BC Hydro currently has seven rate classes for cost of service purposes as set out in Table -, which also provides domestic revenues and sales volumes by rate class for F0. S.B.C. 00, c.; Order-in-Council (OIC) No. (0); aedc0efecbffa.pdf. Page -

38 Chapter - Introduction Table - Current BC Hydro Rate Classes Residential Rate Class BC Hydro Observation $ million F0 Includes customers under the RIB rate, such as apartments, town houses and single family dwellings. Excludes NIAs GWh F0,0, SGS Collectively, can be thought of as, MGS BC Hydro s commercial and 0, small industrial customers, LGS including but not limited to: 0, hotels, motels, mobile home parks and similar establishments that do not qualify for Residential service; schools, churches, hospitals and recreational establishments; nursing homes, boarding homes and rooming houses; and marinas and yachts Transmission Service Irrigation Street Lighting Customers served at transmission voltage level ( kv and above) Customers using electricity for irrigation and outdoor sprinkling during the March to October irrigation season Lighting of public highways, streets, lanes, municipal pathways, other outdoor lighting, traffic signals, traffic signs, traffic warning devices and other equipment for controlling or directing vehicles and pedestrians, 0 The SGS, MGS and LGS rate classes are collectively referred to at times in this Application as General Service. Chapter of the Application contains more detailed descriptions of these seven rate classes and the analysis BC Hydro used to determine that these rate classes remain appropriate, with one exception. As noted in section.. above, BC Hydro proposes to divide the existing Street Lighting class into two new rate classes: customer-owned Street Lighting and BC Hydro-owned Street Lighting. There are Page -

39 Chapter - Introduction 0 0 meaningful cost differences between these two types of service. Refer to section. of the Application. Revenue Neutrality Revenue neutrality is a concept that arises when the rate structure applicable to a rate class changes. A new rate structure is revenue neutral if it yields the same revenue that would have resulted from the rate structure that is being replaced for that class. All of BC Hydro s proposed rates are forecast revenue neutral in this generic sense of the expression. However, revenue neutrality can be applied in different ways, as discussed in relation to each of BC Hydro s rate designs for the five main rate classes in Chapters, and of the Application. Default Rates and Optional Rates Default rates are rates that all customers pay unless they have options and choose to opt for another rate. Optional rates are rates that customers can voluntarily choose to be on. Energy Rate, Basic Charge and Demand Charge Generally speaking BC Hydro s rates consist of an energy rate (all of BC Hydro s Transmission Service, General Service and Residential rates have energy rates), which is the calculation of the amount of electricity kwh consumed during the billing period, and a basic charge to recover a part of the fixed costs of service which do not vary with usage such as metering and billing (BC Hydro s default General Service and Residential rates have basic charges). BC Hydro s Transmission Service (e.g., RS and RS ) and the LGS (RSxx) and MGS (RS xx) default firm service rates have demand charges, whereas BC Hydro s interruptible rates do not have a demand charge (e.g., RS 0). Demand charges are based on the customer s highest kilowatt (kw) demand during the billing period. Demand charges are used to help recover some of the demand-related costs of providing electricity service to customers. BC Hydro has to maintain sufficient capacity to satisfy all its customers needs at once and these costs are relatively fixed. Therefore demand charges do not vary according to customers consumption, but are applied to their demand on the system. Page -

40 Chapter - Introduction. Rate Design Priorities and RDA Modules.. BC Hydro s Rate Priorities Rate design is a complex process that must take into account multiple and competing objectives and multiple stakeholder interests. BC Hydro s rate design proposals are evaluated in accordance with generally accepted rate design criteria. The eight rate design criteria are derived from Bonbright s Principles of Public Utility Rates 0 text and are described in section.. of the Application. In light of the five factors identified in section.. above, BC Hydro prioritizes the three Bonbright rate design criteria set out in Table -. 0 Table - Three BC Hydro Prioritized Rate Design Criteria Rate Design Criteria Description Customer understanding and acceptance/practical and cost-effective to administer Stable rates for customers Fair apportionment of cost among customers Rates should be clear, transparent and costeffective to implement. Overall, minimize unexpected changes that can be seriously adverse to existing customers: If existing rates are understandable and generally accepted, and continue to be useful, they should not be replaced with new rates; For those rates that do not meet the customer understanding and acceptance criterion and/or are no longer useful, replace or amend the rate so that the rate is simple, understandable, has public acceptability, and is feasible from an application and interpretation perspective. BC Hydro uses the fairness criterion for intraclass purposes in the Application, and in particular to examine cost recovery through variable energy rates versus recovery of fixed costs through basic charges and/or demand 0 James C. Bonbright, Principles of Public Utility Rates (st Edition; Columbia University Press: New York, ), page. The eight criterion are: Price signals that encourage efficient use and discourage inefficient use; fair apportionment of costs among customers; Avoid undue discrimination; Customer understanding and acceptance/practical and cost effective to implement; Freedom from controversies as to proper interpretation; Recovery of the revenue requirement; Revenue stability; and Rate stability. Page -0

41 Chapter - Introduction Rate Design Criteria Description charges. As a result of the recent amendment to Direction No. to the Commission which provides that in setting rates for BC Hydro for F0-F0, the Commission must not set rates for the purposes of changing the R/C ratio for a class of customers. 0.. Application as Foundation and RDA Modules BC Hydro carried out stakeholder engagement with respect to the 0 RDA from May, 0 to mid-september 0 using an array of input streams as described in section.. of the Application. At the first 0 RDA workshop (Workshop ) on May, 0, a number of stakeholders and Commission staff commented that given the broad scope of the 0 RDA, it would make sense to undertake the 0 RDA regulatory review in stages (referred to as modules ). Stakeholders identified Transmission extension policy and Distribution extension policy, which respectively govern new customer payments towards transmission and distribution infrastructure required to serve them, as candidates for a later module. At Workshop and Workshop, BC Hydro confirmed with stakeholders that Transmission extension policy and Distribution extension policy would be the subject of a later module (referred to as Module ). At Workshop b BC Hydro identified the following as issues to be addressed as part of Module : () rate structures for NIAs; () Irrigation and Street Lighting rate structures; and () farm service issues. This Application is referred to in places as 0 RDA Module. The scope of 0 RDA Module consists of BC Hydro s F0 COS study; proposals for Residential, SGS, MGS, LGS and Transmission Service default rates; and Transmission Service OIC No. 0; B.C. Reg. 0/0, amending section of Direction No., described in section... of the Application. Refer to pages - of the Workshop consideration memo found at Appendix C-A to the Application. Refer to the Workshop b presentation slide deck, slides and 0, copy at Appendix C-B to the Application; and to sections.. and.. of the Workshop a/b consideration memo at Appendix C-B. It would be difficult for farm Residential, farm General Service, Irrigation and NIA customers to understand and evaluate their preferences and for BC Hydro to evaluate trade-offs until final Residential, SGS, MGS and LGS default rate designs are resolved through BC Hydro s proposals and a Commission decision. Page -

42 Chapter - Introduction 0 0 rate options. The principal reason for including Transmission Service rate options as part of Module is that such options were identified and had the benefit of being examined as part of the 0 IEPR task force process (the IEPR process, recommendations and B.C. Government responses are discussed in section... of the Application). 0 RDA Module supports and is in line with B.C. Government policy as described in section.. of the Application, and is put forward by BC Hydro only after extensive engagement with stakeholders and customers. BC Hydro s preference is to use Module to set the default Residential and General Service rate structures. In particular, BC Hydro believes that before it pursues optional rates for General Service customers it is imperative that the issues with the default rates for MGS and LGS customers be addressed (these problems are enumerated in sections. and. of the Application). Accordingly, BC Hydro plans to address voluntary Residential and General Service options as part of 0 RDA Module. In this way, Module sets the foundation for future BC Hydro proposals concerning Residential and General Service customers rate options to offer such customers additional choice. BC Hydro currently provides customers choice through a variety of billing mechanisms and flexible payment arrangements such as Equal Payment Plan, a service available to customers to bill their estimated annual cost of service in equal monthly amounts over a month period, and Pay As You Go Billing Plan (section.. of the Electric Tariff), which allows monthly payments based on an estimate to be paid one month in advance. Refer to section.. of the Application. Examples of optional Residential and General Service customer rates raised by stakeholders include: A rate for Electric Vehicle at home-charging; Page -

43 Chapter - Introduction A voluntary prepayment option pursuant to which Residential customers pay for a set value of electricity in advance of consumption, rather than paying monthly or bi-monthly after electricity is used; Interruptible rate(s) for General Service customers. 0 BC Hydro foresees filing Module with the Commission in the fall/winter of 0, sometime after receiving Commission Module -related order(s); a review period to consider such order(s); and additional stakeholder engagement.. Proposed Regulatory Review Process for Application and Communications.. Proposed Regulatory Review Process for Application Except for Medium General Service and Large General Service 00 per cent Part Pricing BC Hydro proposes a process of one round of Commission and Intervener IRs, followed by a Procedural Conference to determine: () whether expedited approval processes should be pursued for some elements of the Application including Streamlined Review Process(es) (SRP) and/or Negotiated Settlement Process(es) (NSP), with review of the remainder of the Application to proceed by way of a second round of IRs and an oral hearing; and () if interveners intend to file evidence. Refer to Table -. 0 Table - Proposed Regulatory Review Process for Application Except for Medium General Service and Large General Service 00 per cent Part Pricing Process Date Filing of Application September, 0 Commission Issues Regulatory Timetable October,0 Round Commission IRs October, 0 Round Intervener IRs October, 0 BC Hydro Responses to Round IRs December, 0 Procedural Conference December, 0 Page -

44 Chapter - Introduction Based on stakeholder feedback, BC Hydro identified the following as SRP/expedited review candidates: 0 0 Freshet rate pilot - As described above in section.. above, BC Hydro is requesting approval for the freshet rate pilot by February, 0. Accordingly, BC Hydro proposes that the freshet rate pilot regulatory review process consist of one round of IRs followed by a SRP in January 0 so that the Commission can issue an order no later than February, 0. This request is supported by Association of Major Power Consumers of British Columbia (AMPC) and RS chemical producer and pulp and paper mill customers expressing an interest in the freshet rate pilot. Refer to AMPC s support letter at Appendix C- E; RS F0-F0 Pricing Principles As described in section... of the Application, this topic was the subject of two stakeholder workshops (Workshop and Workshop 0). BC Hydro is of the view that the RS F0-F0 Pricing Principles do not warrant an oral hearing. BC Hydro suggests one round of IRs followed by a SRP in January 0, in conjunction with the proposed freshet rate pilot SRP. AMPC supports BC Hydro s recommended process for review of the RS F0-F0 Pricing Principles. Refer to AMPC s support letter at Appendix C-E; Other existing Transmission Service rates The 0 RDA stakeholder engagement process did not result in any significant issues being raised with respect to RS, RS, RS, RS or RS 0. As noted in section.. above, BC Hydro is requesting amendments to RS. BC Hydro suggests one round of IRs followed by a SRP in January 0 for review of BC Hydro s requested RS amendments, in conjunction with the AMPC is an industry association that represents BC Hydro s major industrial load customers in matters of electricity regulation. AMPC members are Transmission Service and LGS customers of BC Hydro in the pulp and paper, forestry, mining, electrochemical, petrochemical and petroleum sectors, and collectively represent a significant majority of BC Hydro s large industrial load. Page -

45 Chapter - Introduction 0 proposed SRP for the freshet rate pilot and RS F0-F0 Pricing Principles; Standard Charges British Columbia Old Age Pensioners Organization et al (BCOAPO) asked BC Hydro to consider an expedited review for the proposed Minimum Reconnection Charges, and wants the updated default Minimum Connection Charge in place before the 0/0 winter season. British Columbia Sustainable Energy Association and Sierra Club B.C. Chapter (BCSEA) suggested that all the Standard Charges could be candidates for an expedited review. On July, 0, BCOAPO provided BC Hydro with a letter reiterating its request that BC Hydro propose an expedited review for the proposed Minimum Reconnection Charges; a copy of this letter is found at Appendix C-D. At Workshop held on July 0, 0, BC Hydro identified that there would be a $0,000 impact to net income in F0 if the updated default Minimum Reconnection Charge was to be implemented on December, 0. BC Hydro is of the view that the Minimum Reconnection Charges are candidates for an expedited review consisting of one round of IRs and a SRP in January 0 so that the Commission can issue an order and BC Hydro can implement the requested Minimum Reconnection Charges on April, 0. 0 At Workshop Commission staff suggested that an early procedural conference could be held to discuss the relevancy of the F0 COS given the recent amendment to section of Direction No., which provides that in setting rates for BC Hydro for F0-F0, the Commission must not set rates for the purposes of changing the R/C ratio for a class of customers (referred to as the Rate Rebalancing Amendment, discussed in section... of the Application). As described in Chapter of the Application, the F0 COS was used to inform rate BCOAPO is a group of community-based organizations who collectively represent the interests of BC Hydro s low and fixed income residential ratepayers. BCSEA is ratepayer group encompassing citizens, professionals and practitioners committed to promoting the understanding, development and adoption of sustainable energy, energy efficiency and energy conservation in B.C. Page -

46 Chapter - Introduction 0 design, such as the level of demand charge cost recovery, and thus remains relevant to the 0 RDA. In BC Hydro s view, the first Round of IRs should be issued on the F0 COS and BC Hydro should respond to the Round IRs before any procedural conference is held so that parties can better explore and consider F0 COS-related issues. Thus BC Hydro recommends that the review process for the F0 COS, which could consist of a NSP, is best addressed at the proposed December 0 Procedural Conference after BC Hydro responds to Round IRs. There may be other parts of the Application rates that are suitable for SRP/NSP/expedited reviews. BC Hydro will continue to engage with those 0 RDA stakeholders who intervene in the review of 0 RDA Module for purposes of the proposed December 0 Procedural Conference... Proposed Regulatory Review Process for Medium General Service and Large General Service 00 per cent Part Pricing As noted in section.. above, BC Hydro is requesting final order for approval of the 00 per cent Part Pricing effective January, 0. As described in section. of the Application, a number of LGS and MGS customers have complained formally to the Commission and/or informally to BC Hydro about the / Pricing. As set out in Table -, BC Hydro proposes a process of one round of Commission and Intervener IRs, followed by intervener submissions and BC Hydro reply submissions. 0 Table - Proposed Regulatory Review Process for Medium General Service and Large General Service 00 per cent Part Pricing Process Date Filing of Application September, 0 Commission Issues Regulatory Timetable October, 0 Round Commission IRs October, 0 Round Intervener IRs October, 0 BC Hydro Responses to Round IRs November, 0 Intervener Written Submissions November, 0 BC Hydro Reply Submissions November 0, 0 Page -

47 Chapter - Introduction.. Communications All communications regarding this proceeding should be addressed to: Tom Loski Chief Regulatory Officer BC Hydro 00- Dunsmuir Street Vancouver, BC VB R Telephone: (0) -0 Fax No.: (0) -0 bchydroregulatorygroup@bchydro.com Craig Godsoe Sr. Solicitor & Counsel BC Hydro 00- Dunsmuir Street Vancouver, BC VB R Telephone: (0)--0 craig.godsoe@bchydro.com Jeff Christian Legal Counsel Lawson Lundell LLP 00- West Georgia Street Vancouver, BC VC L Telephone: (0) - jchristian@lawsonlundell.com. Structure of Application The Application consists of eight chapters and eight main appendices, as follows: Chapter Chapter Chapter Chapter Chapter Chapter Chapter Appendix A Appendix B Appendix C Appendix A-A Appendix A-B Appendix A-C Appendix A-D Appendix C- Appendix C- Appendix C- Appendix C- Appendix C- Context for the Application Stakeholder Engagement and Rate Design Evaluation Methodology Cost of Service Rate Class Determination Residential Rate Design General Service Rate Design Transmission Service Rate Design Electric Tariff Terms and Conditions Drafts of Requested Orders MGS and LGS New Account / Pricing Amendments RS F0-F0 Pricing Principles; RS Amendments; and Freshet Rate Pilot Minimum Reconnection Charges Default Residential, Small General Service, Medium General Service and Large General Service Rates; Residential E-Plus Rate; BC Hydro Owned Street Lighting Rate Class; Electric Tariff Terms and Conditions Glossary and Abbreviations Appendix C contains all 0 RDA-related stakeholder materials relating to Module grouped by subject matter Scope of 0 RDA Cost of Service Residential Rates and Electric Tariff Terms and Conditions General Service Rate Design Transmission Service Rates Page -

48 Chapter - Introduction Appendix D Appendix E Appendix F Appendix G Appendix H Appendix D-A Appendix D-B Appendix D- Appendix F-A Appendix F-B Appendix F-C Appendix F-D Appendix F-E Appendix G-A Appendix G-B Appendix H-A Appendix H-B External Expert Curriculum Vitae (CV): CV of Richard W. Cuthbert CV of Dr. Ren Orans Energy + Environmental Economics (E) Literature Review for the Relative Elasticities of BC Hydro Small and Large Residential Customers ( Will Extending the RIB Rate Encourage Conservation? ) F0 Cost of Service Model and Schedules Rate Schedules: RS xx and RS xx / Pricing Amendment RS Freshet Energy RS Modified Demand RS 0 Duel Fuel RS xx and RS xx MGS Proposal and LGS Proposal, and associated amendments to RS xx (GS - Control Group Proposal) and elimination of RS xx Electric Tariff Terms and Conditions Proposed Electric Tariff Terms and Conditions [Note to reader: the updated Terms and Conditions will be submitted with BC Hydro s responses to Round IRs] Derivation of proposed changes to the Standard Charges Residential, General Service and Freshet Rates Modelling: Residential and General Service Rate Modelling Assumptions Example of Freshet Rate Billing 0.. Stakeholder Engagement and Consideration Memos The Application and its structure have been informed by the extensive stakeholder engagement conducted with respect to 0 RDA Module topics. In particular, analysis undertaken for the stakeholder engagement processes, particularly the topic-specific workshop consideration memos, are relied on and cross-referenced in the various Application chapters. For example, alternative rate designs vetted and rejected by general stakeholder consensus are not brought forward in the Application chapters for detailed analysis; rather, they are listed and the reader is directed to the appropriate consideration memo for the reasons why the particular alternative rate design was rejected... Minister Residential Inclining Block Rate Letter On July, 0, the B.C. Minister of Energy and Mines sent a letter (Minister RIB Report Letter) to the Chair of the Commission requesting a report on several listed Page -

49 Chapter - Introduction 0 0 issues (set out as five questions) relating to BC Hydro s RIB rate and FortisBC s Residential Conservation Rate (copy at Appendix C-D). The Minister RIB Report Letter provides that the Commission use the 0 RDA regulatory review as the process to collect information from BC Hydro concerning the RIB rate for the Commission report rather than a separate process. The Commission in a letter dated August, 0 (Commission RIB Report Methodology Letter) asked that by September 0, 0 BC Hydro provide information on the methodologies it is using to gather information and report on the five questions posed in the Minister RIB Report Letter. Consistent with the Minister RIB Report Letter identifying the 0 RDA as the venue for addressing the five questions as they relate to BC Hydro s RIB rate, BC Hydro provides the Commission-requested information in sections. and. of the Application... Information Submitted with Round IR Responses BC Hydro s proposed changes to the Terms and Conditions for Module purposes are discussed in section. of the Application. BC Hydro will submit the proposed changes to the Terms and Conditions (Appendix G-), which are administrative in nature, as part of its responses to Round IRs. As described in section. of the Application, BC Hydro will also be including a low income terms and conditions business case. Engagement with BCOAPO is on-going on this topic, and BC Hydro s low income terms and conditions business case together with related stakeholder engagement will be provided as part of BC Hydro s responses to Round IRs responses. Exhibit A- in the BCUC RIB Rate Report; A-_Establishing-Comment-Process.pdf. Page -

50 Chapter Stakeholder Engagement and Rate Design Evaluation Methodology

51 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Table of Contents. Introduction and Chapter Structure Three Main Inputs Legal Regime Rate-Setting under the Utilities Commission Act Clean Energy Act Direction No., the Heritage Contract and Rate Rebalancing Special Direction No Government Policy Postage Stamp Rates Mandatory Residential and Commercial Time of Use Rates NTL and LNG Rates Energy Plan Direction No., the RS Tier 0/0 Split and RS Stakeholder Engagement Participant Funding Topic-Specific Workshops Customer Focus Group Sessions Face-to-Face Meetings Other Public Engagement Streams: Residential E-Plus Customers Other Public Engagement Streams: Information Sessions Context for Application Regulatory Context: Prior Commission RDA and Rate Structure Decisions and the 0 Industrial Electricity Policy Review RDA Industrial Service Options Application Heritage Contract and TSR Stepped Rates Inquiry Transmission Service Rate Application Rate Design Application Residential Inclining Block Rate... - Page -i

52 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology LGS and MGS Industrial Electricity Policy Review Current Environment Context Smart Meter Infrastructure Energy Long-Run Marginal Cost Capacity Long-Run Marginal Cost Rate Assessment Methodology Bonbright Criteria Application of Bonbright Criteria and Stakeholder Input Bonbright Criteria Weighting Jurisdictional Reviews Cost of Service Residential and General Service Rates Transmission Service Rates Rate Modelling Use of External Experts Scoping... - List of Figures Figure - Figure - Energy LRB: Before Implementation of 0 IRP Recommended Actions... - Energy LRB: After Implementation of 0 IRP Recommended Actions... - Page -ii

53 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology List of Tables Table - 0 RDA Topic-Specific Workshops... - Table - Relevant Commission Heritage Contract Inquiry Recommendations and B.C. Government Responses... - Table - Relevant IEPR Task Force Recommendations and B.C. Government Responses... - Table - Market Prices, January-July Table - Inflation Adjusted Range in Energy LRMC for Transmission Service... - Table - Inflation Adjusted Range in Energy LRMC for Distribution Service... - Table - Bonbright Criteria and Application for Rate Design Evaluation... - Page -iii

54 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0. Introduction and Chapter Structure This Chapter consists of four main sections as follows. Section. describes the three main inputs BC Hydro used to review existing Transmission Service, LGS, MGS, SGS and Residential rate structures and Terms and Conditions, and develop and assess rate design alternatives, which are:. Legal regime (section..). At Workshop, Commission staff recommended that BC Hydro focus on the changes to the legal landscape since the 00 RDA;. B.C. Government policy (section..); and. Stakeholder feedback obtained through the processes detailed in section.., including topic-specific workshops, focus groups and individual meetings. This feedback informed BC Hydro s proposals as further elaborated in Chapters,, and. Section. outlines the context for the Application. Participants in the 0 RDA topic-specific workshop process asked BC Hydro to provide the following in the Application: 0 Review of prior Commission decisions relevant to the 0 RDA - BC Hydro set out a list of what it considered to be prior relevant Commission decisions at Workshop for comment. Participants generally agreed with the list. Commission staff suggested that BC Hydro also enumerate relevant directives contained in such decisions. 0 At Workshop a, Commission staff suggested BC Hydro examine two additional decisions: the May 0 0 Commission staff written comments at Attachment to the Workshop consideration memo; copy at Appendix C-A. Slide of the Introduction to and Context for BC Hydro s presentation slide deck; copy at Appendix C-A. Supra, note. Attachment to the April, 0 Workshop a summary notes of the Workshop a/b consideration memo (part, Q. ), copy at Appendix C-B. Page -

55 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology BC Hydro-FortisBC Power Purchase Agreement (PPA) decision and the 0/0 FortisBC Industrial Stepped Rates/Stand-By Rates decision. Refer to section... Directives are grouped by subject matter and canvassed in Chapter (COS), Chapter (RIB rate and Residential E-Plus rate) and Chapter (SGS/MGS/LGS); and Description of changes since the 00 RDA - The two most frequently cited changes by stakeholders are the Smart Meter Infrastructure (SMI) initiative for its COS implications and BC Hydro s lower energy LRMC refer section... and... respectively. 0 Section. chronicles the evaluation methodology for rate design options: The eight Bonbright criteria for rate-making (section..). Stakeholders assisted with the description and application of these criteria, and provided feedback on how BC Hydro should weigh the criteria; Jurisdictional review (section..). Stakeholder engagement and external expert opinion was used to decide which jurisdictions to review for COS, Residential rate and General Service rate purposes; Rate modelling (section..) for Residential, SGS, MGS and LGS rates, with results presented and discussed at topic-specific Workshops, a/b, a/b, a/b and ; and Refer to the Commission s decision in In the Matter of British Columbia Hydro and Power Authority: Application for Approval of Rates between BC Hydro and FortisBC Inc. with regards to Rate Schedule 0, Tariff Supplement No. Power Purchase and Associated Agreements, and Tariff Supplement No. to Rate Schedule, Decision (RS 0 Decision), section..; _BCH_PPA-RS%00-TS-N o--and-_decision.pdf; and FortisBC Application for Approval of Stepped and Stand-by Rates for Transmission Voltage Customers, Decision, section.. (FBC Stepped Rate Decision); G--_FBC-Stepped_Standby-Rates_W EB.pdf. FBC Stepped Rate Decision supra, note, section... Refer, for example, to Commission staff s written comments at Attachment to the Workshop consideration memo, Appendix C-A: One of the most important changes since the last rate design on the RIB rate is the downward revision of the BC Hydro estimate of LRMC. Page -

56 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology External expert reviews for the F0 COS methodology, RIB rate, MGS rate and LGS rate (section..). 0 Section. concludes this Chapter with a depiction of one of the two criteria BC Hydro applied to scope 0 RDA Module - whether a rate structure or issue had been recently reviewed by the Commission. (The other scoping criterion is B.C. Government policy, which as noted is described in section..).. Three Main Inputs.. Legal Regime... Rate-Setting under the Utilities Commission Act The rate setting function of the Commission is governed by sections to of the UCA: 0 Section addresses the process by which the Commission is engaged to determine (on its own motion or through a complaint by a public utility or interested person) that existing rates in effect and collected or any rates charged or attempted to be charged for a service by a public utility are unjust, unreasonable, insufficient, unduly discriminatory or in contravention of the UCA. In the case of 0 RDA Module, subsection ()(a) of the UCA is engaged as the Commission ordered BC Hydro to file a RDA in F0 that includes revisiting the RIB Step /Step threshold, assessing the interaction of the RIB basic charge and rate structure as well as consideration of a minimum charge, and recommending RIB pricing principles to apply beyond F0; Subsections () and () place constraints on public utilities and inform the Commission s decision-making in setting rates pursuant to section 0. Public utilities must not make, demand or receive an unjust, unreasonable, unduly discriminatory or unduly preferential rate for a service by it in B.C.; Commission Order No. G--, page. Page -

57 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 The Commission has considerable discretion in designing rates pursuant to section 0 of the UCA. Subsection 0()(b) provides that the Commission must have due regard in the setting of a rate that: (i) it is not unjust and unreasonable within the meaning of section, (ii) provides the public utility for which the rate is set a fair and reasonable return on any expenditure made by it to reduce energy demand; and (iii) to encourage public utilities to increase efficiency, reduce costs and enhance performance ; and Section places requirements on public utilities to file rate schedules with the Commission, to receive the Commission s consent before rescinding or amending a schedule, and to charge only those rates that are in accordance with the filed schedules. 0 For ease of reference BC Hydro refers to the legal test that its proposed rates in the 0 RDA, and the rates to be set by the Commission, must be fair, just and not unduly discriminatory.... Clean Energy Act Subsection () of the CEA provides that BC Hydro must be self-sufficient by 0 and each year after that by holding the rights to an amount of electricity that meets the electricity supply obligations solely from electricity generating facilities within the Province [emphasis added]. Thus BC Hydro cannot plan to rely on the spot market to meet its customers forecasted energy demand. BC Hydro s energy LRMC must be based on the cost to acquire new B.C.-based DSM and/or supply-side resources. Refer to section... below for a discussion of BC Hydro s energy LRMC. Section of the CEA sets out British Columbia s energy objectives, including the following objectives referenced in various 0 RDA topic-specific workshops: (b) - to take demand-side measures and to conserve energy (collectively referred to as Demand Side Management (DSM) in this Application), including the objective of BC Hydro reducing its expected increase in demand for electricity by the year 00 by at least per cent; Page -

58 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 (c) - to generate at least per cent of the electricity in B.C. from clean or renewable resources and to build the infrastructure necessary to transmit that electricity; (e) - to ensure that BC Hydro s ratepayers receive the benefits of the heritage assets and to ensure that the benefits of the heritage contract under the BC Hydro Public Power Legacy and Heritage Contract Act continue to accrue to BC Hydro s ratepayers; (f) - to ensure BC Hydro s rates remain among the most competitive of rates charged by public utilities in North America; (h) - to encourage the switching from one kind of energy source or use to another that decreases greenhouse gas (GHG) emissions in B.C.; and (k) - to encourage economic development and the creation and retention of jobs. BC Hydro s view is that these British Columbia s energy objectives are not legally binding on the Commission for rate design purposes: 0 Subsections.(.)(a), (.)(a) and (.)(a) of the UCA expressly provide that the Commission must consider and be guided by [the] British Columbia s energy objectives for purposes of adjudicating BC Hydro s DSM expenditure schedules, Certificate of Public Convenience and Necessity applications and those Electricity Purchase Agreement (EPA) filings subject to a hearing; Other than electricity to serve demand from facilities that liquefy natural gas for export by ship: refer to the British Columbia s Energy Objectives Regulation, B.C. Reg. /0; S.B.C. 00, c.; The Rate Comparison Regulation, B.C. Reg. /0 provides that BC Hydro is to provide the B.C. Minister of Energy and Mines with a report that includes a comparison of BC Hydro s rates with those of at least one public utility in each of other jurisdictions in North America, including the provinces of Alberta, Manitoba, Ontario and Quebec, and the states of Washington, Oregon and California; BC Hydro used the Rate Comparison Regulation to inform the scope of its various jurisdictional assessments as described in section.. of the Application. Page -

59 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology There is no corresponding requirement set out in sections to of the UCA, which contain the rate setting provisions. 0 The net result in BC Hydro s view is that the Commission may, but is not obliged to, consider and be guided by the British Columbia s energy objectives, subject to the proviso that in the event of a conflict between an energy objective and a rate-setting provision of the UCA, the latter must prevail.... Direction No., the Heritage Contract and Rate Rebalancing On March, 0 Direction No. to the Commission was enacted. Direction No. repeals Heritage Special Direction No. HC (HC) and re-enacts the essential elements of the Heritage Contract formerly enshrined in HC. The Heritage Contract is attached as Appendix A to Direction No.. The first and most important element of the Heritage Contract is that BC Hydro s rates are established on a cost of service basis and not market prices (refer to subsection (d) of Direction No. ). This means that BC Hydro s customers get the full benefit of BC Hydro s Heritage Resources. Another important corollary element is the principle that new customers should be able to benefit from the low-cost Heritage Resources, as shown on Schedule B to the Terms of Reference attached to the Commission s Heritage Contract Report as Appendix A. 0 Direction No. has a number of other provisions relevant to 0 RDA Module : 0 Subsection () In designing rates for BC Hydro s Transmission Service customers, the Commission must ensure those rates are consistent with Recommendations # to # in the Heritage Contract Report. Recommendation # is relevant to the default stepped rate for Transmission Service customers (RS ): (i) the Tier rate should reflect the cost of new supply; (ii) the 0 BC Hydro s Heritage Resources are defined in section of Direction No. by reference to Schedule A to the Heritage Contract inquiry; copy can be found at link provided in footnote 0 below. Heritage Contract Report, supra, note in Chapter. The term default rate is described in section. of the Application: Default rates are rates that all customers pay unless they have options and choose to opt for another rate. Page -

60 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 quantity of power being sold to Transmission Service customers at Tier of RS should be set at 0 per cent, and the Tier quantity should make up the remaining 0 per cent (referred to as the Tier /Tier 0/0 split); and (iii) the Tier rate should be derived from the Tier rate and the Tier /Tier 0/0 split to achieve revenue neutrality to the extent reasonably possible. As a result, the Commission cannot change the Tier /Tier 0/0 split. Refer to section.. of the Application for details. Recommendation # concerns the Exempt Rate (RS ). Refer to section.. of the Application; Section In the revenue requirement context, the Commission must not allow rates to increase by more than per cent in F0,. per cent in F0 and per cent in F0 on average, compared to the rates of BC Hydro immediately before the increases; Section 0 The Commission must set the Deferral Account Rate Rider (DARR) for F0 and future years of BC Hydro at per cent, and must not order any change to the DARR except on application by BC Hydro; Section The Commission is to issue an order cancelling BC Hydro s retail access program. In addition, except on application by BC Hydro, the Commission must not set rates for BC Hydro that would result in direct or indirect provision of unbundled transmission service to retail customers in B.C. or to those who supply such customers. BC Hydro is not proposing retail access as part of the 0 RDA for the reasons set out in section... of the Application. On July, 0 B.C. Reg. 0/0 was deposited, amending section of Direction No. by providing that in setting rates for BC Hydro for F0-F0, the Commission must not set rates for the purposes of changing the R/C ratio for a class of customers (referred to as the Rate Rebalancing Amendment). As a result, BC Hydro is not proposing rate rebalancing as part of 0 RDA Module. The This was done pursuant to Commission Order No. G--. Page -

61 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 effect of the Rate Rebalancing Amendment was explored with stakeholders at Workshop. In BC Hydro s view, and as described in section. of the Application, there is value in reviewing the F0 COS as part of the 0 RDA; among other things, the F0 COS informs rate design such as the appropriate level of demand charge cost recovery. As part of Workshop, BC Hydro proposed to submit a F0 COS with the Commission. Refer to section.. of the Application. In addition, BC Hydro sought stakeholder input as to what F0 COS review process BC Hydro should recommend to the Commission. As set out in section.. of the Application, BC Hydro proposes that the F0 COS be subject to one round of IRs with the possibility of a NSP.... Special Direction No. 0 The 0 amendments to Special Direction No. 0 to the Commission (SD 0) are relevant to the discussion of the lower energy LRMC in section... below. Sections and of SD 0 provide that the Commission, in setting rates for BC Hydro, must use the planning criterion of average water. As detailed in footnote in Chapter in respect of the Electricity Self-Sufficiency Regulation, the 0 change in planning criterion increases the combined reliance on BC Hydro s Heritage hydroelectric system non-firm energy backed by market reliance in F0 by about,00 GWh/year, reducing the need for new energy resources... Government Policy At Workshop, BC Hydro identified the following as B.C. Government policy: postage stamp rates (section...); no mandatory TOU rates for Residential or General Service customers (section...); and rates for Northwest Transmission Line (NTL) and liquefied natural gas (LNG) customers as the subject of B.C. Government and not Commission determinations (section...). The relevant Policy Actions from the most recent B.C. Government Energy Plan The BC Energy B.C. Reg. /00, as amended by OIC No. 0 (B.C. Reg. /0, deposited February, 0). Page -

62 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Plan: A Vision for Clean Energy Leadership (the 00 Energy Plan) are summarized in section... below. The B.C. Ministry of Energy and Mines provided BC Hydro with a letter dated September, 0 (MEM Policy Letter) stating that: 0 Postage-stamp rate-making continues to be B.C. Government policy; The benefits of the Heritage Assets should continue to accrue to all BC Hydro customers on the basis of their energy consumption and peak demand, and that the benefits should not be re-allocated between customer groups on a different basis or withheld from new customers. This issue is addressed in section... below in the context of the 00 Heritage Contract proceeding; and Re-iterating the previous Government decision that it will not be referring the RS Tier /Tier 0/0 split, or New Westminster s and University of British Columbia (UBC) s exemption from RS or other stepped rates, to the Commission for review and recommendations under section of the UCA. The MEM Policy Letter also states that the B.C. Government is of the view that the Commission s rationale for exempting Simon Fraser University (SFU) and Vancouver Airport Authority (YVR) from RS and other stepped rates continues to apply. Refer to section... below. 0 A copy of the MEM Policy Letter is found at Appendix C-C of the Application.... Postage Stamp Rates Postage stamp rates are a method of cost allocation where any rate class charge is the same anywhere on the interconnected system, regardless of the geographical region in BC Hydro s service area. The underlying premise is that all customers jointly develop electricity resources and should equally share in the costs. As noted Page -

63 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology by Canadian Association of Petroleum Producers (CAPP) in its written feedback concerning Workshop, postage stamp is the accepted approach to rate-making in the majority of North American jurisdictions. The application of postage stamp rates to BC Hydro s service area has been in place for decades and continues to remain a cornerstone of rate design for BC Hydro. At Workshop and Workshop, BC Hydro indicated that postage stamp rates were a fundamental B.C Government rate design policy, subject only to two discrete and generally accepted exceptions: 0 BC Hydro limits the amount that it will contribute toward the cost of new extensions, effectively limiting the postage stamp treatment of the cost of extensions. As discussed in section. of the Application, Transmission and Distribution extension policy is a Module issue; and In Zone II, BC Hydro limits the amount of energy available at Zone I rates. Again, as discussed in section. of the Application, Zone II (NIA) rate design is a Module issue. The B.C. Government confirmed on a number of occasions its support for postage stamp rates: 0 As indicated below in Table -, the IEPR Task Force recommended continued use of postage stamp rates and the B.C. Government responded on November, 0 that Government will continue to use postage stamp rates ; CAPP represents companies that explore for, develop and produce natural gas and crude oil throughout Canada, and in BC Hydro s service area CAPP members take service under RS and the LGS rate. CAPP s written feedback is found at Attachment to Workshop consideration memo, Appendix C-A. Manitoba has legislated postage stamp rate making for Manitoba Hydro; refer to subsection (.) of the Manitoba Hydro Act, C.C.S.M., c.h0; So too has Quebec: refer to article () (the Régie de L Énergie shall maintain, subject to any government order to the contrary, uniform rates throughout the territory served by the electric power transmission system ) and article. ( rates applicable to a class of customers must be uniform throughout the electric power distribution system, with the exception of independent electric power distribution system north of the rd parallel ) of the Act Respecting the Régie de L Énergie, S.Q. c.r-.0. Page -0

64 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 The B.C. Ministry of Energy and Mines (MEM) in April, July and October 0 reaffirmed its support for postage stamp rates as part of the 0/0 FortisBC Energy Application for Reconsideration and Variance of Commission Order No. G-- Common Rates, Amalgamation and Rate Design Application. MEM s April, 0 letter to FortisBC states that Government policy has been to promote access to energy services on a postage stamp basis so that all British Columbians benefit from access to services at the lowest average cost. In the April, 0 letter, MEM references three examples of confirmation of the B.C. Government s postage stamp policy: the decision as part of BC Hydro s creation to establish postage stamp rates for all residential customers served by BC Hydro; the extension of postage stamp rates for all BC Hydro customers; and the May, 00 statement by the then Minister of Energy and Mines confirming the B.C. Government s position with regard to postage stamp rates for BC Hydro (refer to next bullet); and 0 The B.C. Minister of Energy and Mines May, 00 letter to the Union of British Columbia Municipalities states that [e]lectricity rates will be set on a postage stamp basis. This means that all [BC Hydro] customers within a particular customer class will receive the same rate, regardless of their location in the Province. In consequence of two consecutive Commission decisions in the 00 RDA and 00 RIB 0 (described below in sections... and... respectively) rejecting The July, 0 MEM intervention letter is Exhibit C- in the 0/0 FortisBC Energy Application for Reconsideration and Variance of Order No. G-- Common Rates, Amalgamation and Rate Design Application proceeding ( MEM s April, 0 letter to FortisBC is attached to the intervention letter. A copy of MEM s October 0, 0 Final Submission is found at Exhibit B- in the 00 RDA proceeding; In the Matter of British Columbia Hydro and Power Authority: 00 Rate Design Application, Phase, Decision, October, 00 (00 RDA Decision), page 0; copy available at Page -

65 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 arguments in favour of departures from postage stamp rates on the basis of insufficient evidence, it is apparent that the onus of demonstrating the need for change rests on any party advocating a departure from postage stamp ratemaking. BC Hydro employed postage stamp ratemaking to reject consideration of regionally-differentiated Residential and General Service default rates.... Mandatory Residential and Commercial Time of Use Rates At Workshop, BC Hydro confirmed that it continues to be B.C. Government policy that mandatory TOU rates for Residential and/or General Service customers is not an option for BC Hydro. As its name suggests, under a mandatory default rate customers would have no option to opt out to another rate. BC Hydro referenced the B.C. Minister of Energy and Mines June, 0 letter to the IEPR Task Force which states that the IEPR Task Force s examination of TOU rates is to stay strictly within the bounds of industrial customers only as an example of the B.C. Government s policy on this issue. At Workshop BC Hydro noted its residential rate jurisdictional assessment, which showed that Ontario is the only Canadian jurisdiction implementing default TOU rates for electric utility residential and commercial customers. BCSEA stated that TOU rates for Residential and/or General Service customers as potential alternatives should be in scope for the 0 RDA. Commission staff asked whether and BC Hydro confirmed that optional TOU rates for Residential and/or General Service customers are in scope. BC Hydro received stakeholder input on cision.pdf. 0 In the Matter of British Columbia Hydro and Power Authority: Residential Inclining Block Rate Application, Reasons for Decision to Order No. G--0, dated September, 00 (00 RIB Decision), page 0; BCH-RIB-Decision-WEB.pdf Copy at k%0force.pdf. The Ontario Auditor General s 0 annual report concluded that Ontario s mandatory residential and commercial customer TOU rates may not be designed to effectively reduce peak demand as intended: Annual Report of the office of the Auditor General of Ontario, Chapter, section.; copy available at Page -

66 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Residential and General Service voluntary TOU rates at Workshop and Workshop b respectively. Potential Residential and General Service voluntary options, including optional TOU rates, will be examined as part of Module.... NTL and LNG Rates While the following specific rates are not part of the 0 RDA, the principles informing them are in scope: 0 0 TS : Subsection () of the CEA states that the Commission must set under the UCA a rate as proposed by BC Hydro with respect to NTL, which is a kv transmission line between Skeena substation and Bob Quinn Lake in the northwest part of BC Hydro s service area. In April 0 the Commission approved TS setting out terms and conditions applicable to certain BC Hydro customers receiving electricity service or generator interconnection service by means of NTL. TS allows BC Hydro to recover the actual costs of NTL from customers using the capacity of the transmission line. In the absence of TS, NTL customers would be subject to TS which governs customer payments towards new transmission required to serve them, and thus the principles informing TS are of relevance to Transmission Extension policy which is the subject of 0 RDA Module ; LNG rates: The B.C. Government decided that it will direct both BC Hydro and the Commission with respect to any Electricity Supply Agreements with LNG proponents. On November, 0 the B.C. Government announced the Domestic Long-Term Sales Contracts Regulation under section of the CEA, which provides that a rate for LNG facilities must include: (i) a demand charge equivalent to the RS demand charge; (ii) the greater of the energy charges set out in Schedule to the Regulation or the RS energy charges. The Domestic Long-Term Sales Contract Regulation also establishes Commission Order No. G--, and in particular Appendix A, page of ; G--_BCH_TS.pdf. B.C. Reg. 0/0; copy available at Page -

67 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 that costs of interconnecting with the BC Hydro transmission system and any system upgrades required to serve new LNG facility loads will be borne by LNG proponents Energy Plan On February, 00 the B.C. Government released the 00 Energy Plan. Policy Action is the only policy action that references utility rates: Explore with B.C. utilities new rate structures that encourage energy efficiency and conservation. Examples cited in the 00 Energy Plan include stepped rates (referred to as inclining block rates) for other rate classes after the 00 implementation of RS for Transmission Service customers; interruptible/curtailable rates; clean electricity rates; and tariffs focused on promoting energy efficient new construction. At Workshop a, BC Hydro set out its position that Policy Action No. of the 00 Energy Plan does not oblige the Commission to ignore the eight Bonbright rate design criteria in favour of a conservation objective or to prioritize the Bonbright efficiency criterion over the other seven criteria. BC Hydro implemented an inclining block rate for its Residential customers in October 00 (the RIB rate; refer to section... below). BC Hydro also explored the possibility of inclining block rates for its General Service customers, but as noted in Chapter of the Application, BC Hydro concludes such rate structures are not viable given the heterogeneous nature of each of the SGS, MGS and LGS rate classes. BC Hydro also explored optional interruptible rates and what is referred to as an optional Efficiency Rate Credit for General Service customers, and an optional clean energy credit for its Residential customers. As described in section.. of the Application, BC Hydro will address optional rates for General Service and Residential customers as part of 0 RDA Module. Page -

68 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Direction No., the RS Tier 0/0 Split and RS As described below in section..., the default Transmission Service rate is RS, under which a specific CBL is determined for each Transmission Service customer representing the customer s normal or historic annual energy consumption. A customer purchases energy at the Tier rate up to 0 per cent of its CBL and at the Tier rate above 0 per cent of CBL (this the Tier /Tier 0/0 split referred to in section... above). At Workshops and 0 BC Hydro set out its view that the Commission cannot unilaterally amend the Tier /Tier 0/0 split under its section to UCA rate setting power; instead, the Commission can only be given jurisdiction to review and make recommendations concerning these issues through a section UCA inquiry review process, and only the LGIC can refer this matter to the Commission under section of the UCA. At Workshop 0 BC Hydro confirmed that the B.C. Government has no plans to refer the RS Tier /Tier 0/0 split to the Commission for a section UCA review. The MEM Policy Letter reiterates this. Consequently, the Tier /Tier 0/0 is referenced in this Application (and in particular, in section.) for background purposes only. Similarly, at Workshops and 0, BC Hydro reiterated its legal position with respect to RS. As discussed above in section..., subsection () of Direction No. states that [i]n designing rates for the authority's transmission rate customers, the commission must ensure that those rates are consistent with Recommendations # to # inclusive in the [Heritage Contract Report]. The B.C. Government accepted Recommendation #, which provides [t]hat Aquila [now FortisBC], [New Westminster] and UBC, as entities that distribute all or a significant portion of their load to others, be exempted from the application of stepped rates at this time and form a new rate schedule(s) : It is BC Hydro s view that the Commission cannot unilaterally transfer New Westminster and/or UBC to RS or set a stepped rate similar to RS for New Westminster and/or UBC under its section to UCA rate setting Page -

69 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 power; instead, the Commission can only be given jurisdiction to review and make recommendations concerning this issue through a section UCA inquiry review process, and only the LGIC can refer this matter to the Commission under section of the UCA. In section of the Workshop 0 consideration memo found at Appendix C-B, BC Hydro confirmed that the B.C. Government communicated to BC Hydro that it has no plans to refer the exemption for New West and UBC from stepped rates to the Commission for a section UCA review. The MEM Policy Letter reiterates this; The Commission has jurisdiction under sections to of the UCA with regard to SFU and YVR. The Commission established their exemption from stepped rates in Commission Order No. G-0-0, on the basis that SFU and YVR share similar characteristics to New Westminster and UBC in that they distribute a significant portion of their load to others, and that exempting SFU and YVR is consistent with Recommendation #. The MEM Policy Letter states that the B.C. Government is of the view the rationale for exempting SFU and YVR from RS and other stepped rates continues to apply. 0.. Stakeholder Engagement For purposes of the 0 RDA, BC Hydro developed three main avenues to engage with its customers and stakeholders:. Topic specific workshops (section...);. Customer focus groups (section...); and. Face-to-face meetings (section...). BC Hydro s stakeholder engagement process with Residential E-Plus customers is recounted in section..., and information sessions are outlined in section... below. BC Hydro also established a process for capturing stakeholder comments Copy available at ates.pdf. Page -

70 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 and documenting how these comments were used in BC Hydro s development of its preferred solutions; refer to section...below.... Participant Funding BC Hydro s 0 RDA stakeholder engagement process began in May 0 with a workshop to introduce the scope of the 0 RDA (Workshop ). Multiple stakeholders indicated that BC Hydro should make participant funding available to qualifying stakeholders who participate in pre-application workshops and provide feedback given the significant amount of engagement BC Hydro planned for the 0 RDA. Several stakeholders also noted that their participation in the 0 RDA engagement activities would be subject to obtaining such funding. On June, 0 BC Hydro wrote to stakeholders informing them that BC Hydro would provide funding to participants and their consultants to enable participation in the pre-application workshops, and that funding would be based on the Commission s Participant Assistance/Cost Awards (PACA) Guidelines. A copy of this letter is included in Appendix C-A of the Application.... Topic-Specific Workshops The topic-specific workshops provided a forum for BC Hydro to share detailed information through presentations about proposed changes affecting specific customer groups, to answer questions and receive detailed feedback on proposals. Attendance at topic-specific workshops averaged participants and included participants from stakeholder groups, customers and Commission staff. Workshops ranged in length from about three to seven hours and participants were able to attend in-person or via webinar. BC Hydro employed the following cycle for obtaining feedback and providing BC Hydro s consideration of feedback: () circulate materials, including presentation slide decks, in advance of each workshop; () post draft workshop summary notes to Copy available at Page -

71 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 the BC Hydro 0 RDA website recording stakeholder questions and BC Hydro s responses; () establish a 0 to -day written comment period commencing with the posting of draft workshop summary notes; and () generate what are referred to as consideration memos for each workshop except the last workshop (Workshop ). The consideration memos summarize feedback received and BC Hydro s consideration of the feedback, and explained how feedback was used to further the development of alternatives and/or narrow the number of alternatives brought forward for additional analysis. BC Hydro considered all input it received. Where it conflicts, BC Hydro gave more weight to the views of customers who takes service under the particular rates being assessed except on issues where there could be cost implications for other rate classes. BC Hydro s goal was to hold two workshops on each of the following Module areas: () scope; () COS; () Residential rates; () General Service rates; and () Transmission Service rates. BC Hydro held topic-specific workshops between May, 0 and July 0, 0 as set out in Table - (note that Workshops and are not included as they concerned the Module issues of Transmission and Distribution extension policies). Table - 0 RDA Topic-Specific Workshops Workshop Number Title BC Hydro Rate Design Workshop No., May, 0 Description Identified preliminary scope of 0 RDA: All seven customer classes, Transmission and Distribution Extension policies and Electric Tariff Terms and Conditions. Also set out for discussion what BC Hydro considered to be out of scope topics (refer to section. of this Chapter). COS Workshop No., June, 0 Reviewed BC Hydro s COS methodology, discussed Cuthbert Consulting Inc. and NewGen Strategies and Solutions, LLC s (COS Consultants) jurisdictional review of other utilities COS methodologies and the COS Consultant s recommendations on possible changes to BC Hydro s COS methodology. Residential Rates Workshop No., June, 0 Reviewed charges contained in the Terms and Conditions and potential amendments, identified the Bonbright criteria for residential rate evaluation Page -

72 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Workshop Number Title Description (refer to section.. below), provided Residential customer consumption profiles, identified and evaluated alternative designs to the RIB rate and alternative means of delivering the RIB rate as well as discussing other issues such as the use of the energy LRMC. COS Workshop No., October, 0 Identified BC Hydro s preferred COS methodology in each of the steps of functionalization, classification and allocation. Provided stakeholders a draft of the F0 COS model including a summary of the F0 R/C ratios for each of the seven rate classes. Transmission Service Rate Workshop No., October, 0 (a) LGS/MGS/SGS Workshop No., Session - Regulatory history concerning and the issues arising out of the current LGS/MGS/SGS rate structures, January, 0 Provided legal and regulatory context related to the Transmission Service rates. Reviewed options identified through IEPR Task Force process to help industrial customers manage their electricity bills. Other Transmission Service rates were also reviewed. Reviewed regulatory history of the three default General Service rates as well as providing a summary of the characteristics of each General Service rate class. (b) LGS/MGS/SGS Workshop No., Session - Alternatives to the current LGS/MGS/SGS rate structures, February, 0 (a) Residential Rates Workshop No., Session, April, 0 0 Transmission Service Rates and Freshet Rate Workshop No., May, 0 Provided an overview of alternative development and identified the rate structure objectives to evaluate and compare alternatives. Walked through the bill impact analysis of screened-in alternatives. Criteria used to screen-out alternatives were also explained. Identified the status quo RIB rate as BC Hydro s preferred residential rate design as well as alternatives for a number of standard charges. Confirmed through the Workshop a/b consideration memo that based on stakeholder feedback, BC Hydro would include in the 0 RDA a three step rate and a flat rate as viable alternatives to the RIB rate. Identified BC Hydro s preferred alternative for aspects of RS over which the Commission has jurisdiction: the RS F0-F0 Pricing Principles and the continued use of bill neutrality. Also provided further information on two potential optional rates, Real Time Pricing (RTP) and a freshet rate, including how a freshet rate pilot may be structured. Other Transmission Service rate issues were discussed including the continuation of RS. Page -

73 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Workshop Number Title (b) Residential Rates Workshop No., Session, May, 0 (a) LGS/MGS/SGS Workshop No., Session, June, 0 (b) LGS/MGS/SGS Workshop No., Session, June, 0 BC Hydro s Rate Classes and Application Structure, July 0, 0 Description Reviewed alternative means of delivering the RIB rate as well as rate issues to be dealt with in Module including Residential voluntary rate options, NIA rates and farms and irrigation customer service issues. Presented rate class segmentation analysis and identified BC Hydro s preferred alternatives for SGS as well as the MGS energy rate. Sought feedback on MGS demand structure alternatives. Presented alternatives for LGS energy and demand rate structured and sought feedback. Potential General Service optional rates that will be part of Module were also presented. Outlined the structure of the 0 RDA Module. Discussed the implications of the Rate Rebalancing Amendment for the F0 COS. Identified that BC Hydro was leaning toward a flat LGS energy rate with a flat demand charge as its preferred alternative, and raised the possibility of creating separate rate class(es) for New Westminster and FortisBC. 0 The workshop materials, including consideration memos, are found at Appendix C to the Application grouped by subject matter (Scope Appendix C- (Workshop and Workshop ; COS Appendix C- (Workshop and Workshop ); Residential rate Appendix C- (Workshop and Workshop a/b); General Service rates Appendix C- (Workshop a/b and Workshop a/b); and Transmission Service rates Appendix C- (Workshop and Workshop 0). The workshops provided customers and stakeholders a forum to bring their issues forward and assisted BC Hydro in identifying issues with current rates and in reducing the number of alternative rate designs advanced for further consideration. This was particularly important for Residential rate design, where as described in section of the Workshop consideration memo, a number of alternatives were raised in the 00 RIB proceeding (the 00 RIB Decision is described below in section...). Refer to section.. of the Application for additional detail. Another example concerns Transmission rate options. As a result of AMPC and RS customer input, BC Hydro focused on developing the freshet rate pilot and Page -0

74 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology a load curtailment pilot described in section... below to the exclusion of revising RS, the existing Transmission Service TOU rate, and/or developing a Transmission Service RTP rate; refer to section. of the Application. BC Hydro also made a number of changes to its rate design proposals contained in this Application as a result of workshop input, including but not limited to: Set the default Minimum Reconnection Charge at $0 on the basis of cost categories refer to section.. of the Application; Increase the SGS basic charge cost recovery refer to section... of the Application; and 0 0 Increase the MGS and LGS demand cost recovery refer to sections... and... of the Application.... Customer Focus Group Sessions Focus groups allow for the capturing of participant answers to questions in their own words as well as the opportunity for them to provide context around their answers. Using focus groups to gather qualitative data on the customer experience is a widely used strategy which allows organizations to develop products and services that meet customer requirements. Customer expectations change over time so it is important to stay on top of understanding the customer perspective. BC Hydro held three sets of customer focus group sessions: two sets of focus groups for Residential customers and one set for LGS/MGS customers. A third party facilitated the focus groups to obtain customer feedback without customers needing to have detailed knowledge of rate design. Copies of the final reports for the two Residential focus groups sessions are found at Appendix C-C. The LGS/MGS customer focus group report is found at Appendix F to the F0 Evaluation of the Large and Medium Service Conservation Rates report (F0 LGS and MGS Evaluation Report) circulated to stakeholders prior to Workshops a/b; a copy of Page -

75 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 the F0 LGS and MGS Evaluation Report is found at Appendix C-A of the Application. The following summarizes the three focus group sessions. August 0 Residential Focus Group Sessions The first set of Residential focus group sessions was held throughout August 0. Six focus groups were held: two physical groups in Vancouver with residents of the Lower Mainland; two physical groups in Nanaimo; and two online groups with residents from the Interior, Northern B.C. and Vancouver Island/Gulf Islands. The total number of participants was ; participants were BC Hydro Residential customers, homeowners and renters, mixed ages and gender, mixed employment status and occupations including retirees, and mixed cultural backgrounds including First Nations. The purpose of the first Residential focus group was to canvass participants on their: values (as part of BC Hydro s determination of how to prioritize the eight Bonbright criteria); awareness of the two step RIB rate; and views on various Electric Tariff Standard Charge topics such as new account charges, reconnection/disconnection charges and late payment charges. A summary of findings is as follows. Focus group participants ranked fairness (customers want to believe they are being charged fair and equal Residential rates) and customer understanding and acceptance most highly. With respect to Standard Charges: () there was low demand to pay electricity bills with credit cards; no participant would pay a fee to pay electricity bills with credit cards; () Nearly all participants agreed that customers who are late with a payment should pay a charge unless the cost of recovering the charge is greater than the charge itself; () Nearly all participants agreed that the customer who is disconnected and/or reconnected should pay all the associated costs (participants did not want costs to be absorbed by BC Hydro); and () only customers who have bad credit or no credit history should be charged a security deposit. These findings were factored into the Workshop consideration memo determinations, most notably with respect to BC Hydro s decision to not advance a Page -

76 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 credit card-related charge for electricity bill credit card payments. Refer to Chapter for greater detail. February 0 Residential Focus Group Sessions The February 0 second set of Residential focus group sessions consisted of six focus groups held as follows: two physical groups in Vancouver with residents of the Lower Mainland (Group apartment dwellers, Group house dwellers); two physical groups in Nanaimo (Group apartment dwellers, Group house dwellers); and two online groups with residents from the Interior, Northern B.C. and Vancouver Island/Gulf Islands (Group apartment dwellers, Group house dwellers). The total number of participants in the focus groups was 0 ( apartment dwellers and house dwellers). Participants were BC Hydro Residential customers, homeowners and renters, mixed ages and gender, mixed employment status and occupations including retirees, and mixed cultural backgrounds including First Nations. This second set of Residential focus group sessions were held to seek customer feedback on: () what customers value in rate design; () awareness of the RIB rate; and () reaction to a three step rate. BC Hydro used the February 0 second Residential focus group session to gauge whether reaction differs based on customer dwelling type, and how the rate designs might affect different customer groups (low income, average, apartment, large dwelling, etc.). In summary: before reviewing the RIB rate and three step rates, most participants valued fairness above all other values, while after viewing rate design, efficiency emerged as the most important value followed closely by fairness; most participants were aware of the total amount of their electricity bills as opposed to the RIB rate structure; and most participants reject a three step rate as too complicated. Refer to section. of the Application for greater detail. Page -

77 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology September 0 LGS/MGS Focus Groups The specific objectives of the research were to explore: 0 LGS and MGS customer opinions of both the LGS and MGS two part energy rates and demand charges, including understanding of: areas of perceived complexity; the extent that each of the energy rates and demand charges serve as an incentive to conserve; and customers internal mechanisms of acting on each; Other reported drivers and enablers of conservation, including: the extent to which price, total bill amount, etc. serve as an incentive to conserve; Reported barriers to conservation, including confusion around the LGS and MGS rates and the lack of access to funding for energy efficiency upgrades; and Customer preferences and support of alternative rate structures. 0 In view of the study objectives, the types of participants, logistics and cost implications, focus groups drawn from the greater Vancouver area were considered the best approach to achieve the research objectives. Based on the quantitative research concerning customer awareness, understanding and support of the LGS and MGS rates, four independently moderated groups were chosen: one government/public sector (such as municipalities) group, and three non-government/non-public sector groups based on size. A summary of the findings is as follows. Further details are found in sections.. and.. of the Application: Customer attitudes and opinions of the LGS and MGS rates: Unprompted, only a couple of customers were able to correctly explain how the rate structures worked. Mechanism for conservation: Page -

78 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Most customers reportedly look at their electricity bills, but this is mainly in regards to total dollar amount; The LGS and MGS rates were rarely mentioned as a motivator for conservation. Reported barriers of managing electricity use: Conservation is a low operational priority, mainly because cost of energy is considered to be low; The perceived complexity of the LGS and MGS rates do not promote customer engagement and are widely seen as disempowering. 0 Preferences for alternative rate structures: Eliminate the baseline (flat energy rate); Inclining block rate Face-to-Face Meetings BC Hydro held a series of face-to-face meetings with individual stakeholders to further explore rate design issues as listed below. These face-to-face meetings resulted in BC Hydro examining potential new initiatives it was not originally contemplating. An example is the development and review of a business case for low income terms and conditions with BCOAPO, which as indicated in section.. of the Application, engagement with BCOAPO on this topic is on-going. Another example relates to RDA Module. Through meetings with Commercial Energy Consumers Association of British Columbia (CEC) described below, BC Hydro identified a number of potential General Service customer rate options it will explore in more detail in the stakeholder engagement process leading up to Module. CEC is composed of members which are commercial customers of BC Hydro. Page -

79 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Transmission Service 0 Series of regional meetings with Transmission Service customers in Prince George, Quesnel, Kamloops, Vancouver, Calgary and Nanaimo concerning RS, potential Transmission Service rate options and Transmission extension policy during the May to June 0 (a summary engagement report of these sessions is found at Appendix C-C); Meeting with AMPC concerning the proposed load curtailment pilot on June, 0; Meetings with AMPC, CAPP and Mining Association of BC (MABC) to discuss RS pricing principles, load curtailment and Transmission extension policy on September, 0, October, 0 and September 0, 0 respectively (copy of summary notes for these meetings found at Appendix C-D); Meetings with the four Transmission Service customers exempt from RS currently taking service under RS (New Westminster on September, 0, UBC and SFU on August, 0, and YVR on October, 0). A copy of the slide deck presentation to YVR, which is representative of the three presentations, is found at Appendix C-D). Additional information concerning RS and the four exempt Transmission Service customers is found in sections... and. of the Application; 0 Series of meetings with AMPC and various RS customers on the freshet rate pilot proposal as follows (refer to the Workshop 0 consideration memo for greater detail at Appendix C-B): February, 0 meetings with ERCO Worldwide (ERCO) and Canexus Corporation (Canexus), two chemical manufacturing and handling companies with facilities in North Vancouver (both companies) and Nanaimo (Canexus), to discuss the freshet rate concept; MABC represents the interests of coal, metal, industrial mineral companies and smelters in B.C. and in BC Hydro s service area MABC members take service under RS and the LGS rate. Page -

80 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 March, 0 presentation to AMPC concerning the freshet rate concept which included discussion of whether there was interest in a RTP rate; April, 0 meeting with AMPC s consultant to discuss freshet rate baseline options; April, 0 conference call with Catalyst Paper (Catalyst), a pulp and paper company operating three mills located in Crofton, Port Alberni and Powell River, regarding freshet rate baseline options; May, August, September and September, 0 meeting with AMPC to further discuss freshet rate issues, including billing, baseline options and the proposed wheeling charge. A copy of the September, 0 presentation to AMPC is found at Appendix C-D of the Application. General Service Rates 0 Meetings with CEC on November 0, 0 and April, 0 to discuss potential LGS/MGS rate options as outlined in section of the Workshop a/b consideration memo at Appendix C-A; and Two sessions focused on MGS and LGS energy rate structure alternatives with the following organizations whose members are comprised of LGS and MGS customers: () Session of May, 0 with Building Owners and Managers Association of British Columbia (BOMA), and LGS and MGS customer attendees; and () Session of May, 0 with BC Food Processors Association (BCFPA), 0 Canadian Manufacturers and Exporters (CME) and 0 LGS and MGS customer attendees. Refer to the Workshop a/b consideration memo found at Appendix C-A for additional detail, and to Appendix C-C for a copy of the presentation. 0 BOMA is the largest commercial real estate industry association in B.C.; BCFPA is a non-profit organization dedicated to representing the food, beverage and natural health products processing industries; CME is Canada s largest trade and industry association; Page -

81 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Residential Rates and Electric Tariff Terms and Conditions Meeting with BCOAPO on June, 0 to discuss the default Minimum Reconnection Charge and the disconnection process (copy of the summary notes for this meeting are contained at Appendix C-D); Meeting with Canadian Office and Professional Employees Union Local (COPE ) to discuss the RIB rate and a flat rate alternative, and RIB rate evaluation issues (copy of the summary notes for this meeting at Appendix C-D); and 0 Meeting with BCOAPO on August, 0 to discuss the Electric Tariff Late Payment Charge and default Minimum Reconnection Charge, the BC Hydro low income rate/low income DSM program jurisdictional review, and development of the low income terms and conditions business case Other Public Engagement Streams: Residential E-Plus Customers BC Hydro s engagement with Residential E-Plus customers is described in sections. and. of the Workshop a/b consideration memo at Appendix C-B. Engagement for 0 RDA purposes commenced with a letter dated February, 0 (included in Attachment to the Workshop a/b consideration memo) asking for feedback on the Residential E-Plus rate. In this letter to E-Plus customers, two options for the E-Plus rate were put forward, and E-Plus customers were requested to provide feedback in a mail-in form, an online form and/or at two open houses held in Nanaimo and Victoria on April and April, 0. BC Hydro informed E-Plus customers that it would formulate its preferred 0 RDA E-Plus proposal after June 0, 0. Approximately,00 Residential E-Plus customers responded to the letter (about per cent of the total number of Residential E-Plus customers), with the vast majority of respondents supporting the option that maintained the E-Plus rate under the same terms and conditions. COPE is the certified bargaining agent for BC Hydro employees. Page -

82 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 At Workshop, BC Hydro set out that its preferred E-Plus rate option was to continue with the Residential E-Plus rate with amendment to the terms and conditions to make the rate truly interruptible. BC Hydro developed this preferred Residential E-Plus rate design after considering all the feedback received, and in particular, to the issue that the E-Plus rate should serve a useful function. On August, 0, BC Hydro sent a letter to the Residential E-Plus customers (found at Appendix C-E) informing them of BC Hydro s preferred Residential E-Plus rate design and that it would be filing its RDA in September 0. Refer to section. of the Application.... Other Public Engagement Streams: Information Sessions In response to stakeholders requests, BC Hydro hosted an information session on its Residential End Use Survey (REUS) on November, 0 (a copy of the presentation slide deck is found at Appendix C-F). The REUS provides residential customer level data that is not available to BC Hydro from billing data, including with respect to dwelling type, electric heat, low income and household size. This information from the 0 REUS was used in BC Hydro s residential rate modelling and provided information about the impact on specific residential customer segments for each rate design alternative as described in section.. below. A description of the 0 REUS is provided in section. of the Application, and copy of the 0 REUS is found at Appendix C-F. BC Hydro also hosted information sessions concerning its transmission load interconnection process and distribution extension policy. As these are RDA Module matters, they are not referred to in this Application. Modelling provided during the Stakeholder engagement process was based on the 0 REUS as it was the most recent available. The 0 REUS became available in late August 0 and is used to inform the modelling in the Application. The 0 and 0 REUS methodologies are identical. Page -

83 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology. Context for Application.. Regulatory Context: Prior Commission RDA and Rate Structure Decisions and the 0 Industrial Electricity Policy Review The following section summarizes aspects of prior Commission decisions concerning BC Hydro rate designs relevant to the 0 RDA Module.... RDA The following two elements of the Commission s decision concerning the RDA have a bearing on 0 RDA Module as they relate to General Service rates, and to rate shock and the 0 per cent bill impact test: 0 0 BC Hydro proposed to phase out the declining block energy rates then in place for its Residential and General Service customers. The Commission agreed that declining block rate structures are inappropriate for Residential and GS customers in the face of increasing electricity supply costs and the then direction of B.C. Government policy. The Commission approved a gradual flattening of energy rates for General Service customers, noting that a per cent rate increase to some customers if rates were to be flattened in one step would constitute rate shock. The Commission also highlighted General Service rate design issues, including diversity of load size; and BC Hydro grounded the RDA on four policy objectives, including that no customer bills should increase by more than 0 per cent. The 0 per cent level was a guideline. Reference was also made to a two-times rule which states that if as a result of rate design bills were to increase by more than double the increase received on average by bills within the rate class, this would begin to Commission Order No. G-- and In the Matter of a Rate Design Application by British Columbia Hydro and Power Authority, Decision, April, ( RDA Decision); copies available at BC Hydro s 0 RDA website As set out in Special Direction No., OIC / (required BC Hydro s rates contribute to conservation and the efficient use of energy; recognize the higher cost of new electricity supply; provide for smooth and stable increases; and are otherwise fair, just and reasonable). Special Direction No. was revoked by OIC /; copies available at Page -0

84 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 encroach on the realm of rate shock. The Commission accepted that in the circumstances of the RDA the two-times rule could be used as a rough guideline, noting that it appeared to give BC Hydro more flexibility within the context of a potential per cent revenue requirements increase. In the Commission s decisions concerning BC Hydro s and RRAs, the Commission directed BC Hydro to achieve flat rates for its General Service customers. BC Hydro revised the rates leading to the,00 kwh threshold found in the existing MGS and LGS Part energy rates. The existing MGS and LGS rates are described in sections... and... of the Application.... Industrial Service Options Application The BC Hydro Industrial Service Options Application is relevant because of the RTP option RS. On July,, the Commission issued its decision approving RS. As noted in Attachment to Workshop consideration memo at Appendix C-A, at the time market prices were lower than BC Hydro s standard rates, and many large industrial customers wanted access to these prices. At one point in time, up to to 0 accounts (out of a total of 00 eligible Transmission Service accounts) were enrolled. However, following the 000/00 crisis in the Western power market, all enrolled Transmission Service customers subsequently dropped off of RS. Some of these customers previously negotiated reductions in their CBL to increase the amount of energy that could be purchased at market prices that were below the applicable firm rate; however, this strategy left them exposed when market prices dramatically rose. RDA Decision, page, section... Commission Order No. G-- ( G--_BCH_increaserates.pdf) and section.. of the Decision; and Commission Order No. G-- ( G--_BCH_increaserates.pdf) and section.. of the Decision; In the Matter of British Columbia Hydro and Power Authority: Industrial Service Options Application, Decision, July, ; copy available at 0--_BCH_Industrial%0Service%0Opt ions%0application.pdf. Page -

85 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 BC Hydro applied to terminate RS as part of its 00 Transmission Service Rate Application and the Commission approved termination through Commission Order No. G--0; refer to section... below. Refer also to section... of the Application for the reasons why BC Hydro is not proposing a new RTP option for Transmission Service customers at this time Heritage Contract and TSR Stepped Rates Inquiry On March, 00 the B.C. Government directed the Commission to convene a public inquiry and provide recommendations relating to a Heritage Contract for BC Hydro s existing generation resources and to a stepped rate for Transmission Service customers (referred to as the Heritage Contract Inquiry). On October, 00 the Commission issued the Heritage Contract Report, 0 and on November, 00 the B.C. Government circulated its response to the Commission recommendations. The relevant Commission recommendations and B.C. Government responses are set out in Table G-0-0_BCHydro_TSRA%0Reasons%0for%0Decision.pdf Supra, note. Page -

86 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Table - Relevant Commission Heritage Contract Inquiry Recommendations and B.C. Government Responses Commission Recommendation # - That the Heritage Contract attached as Appendix B to the [Heritage Contract Report] be legislated as contemplated in the [00] Energy Plan. # That the Commission allocate the benefits of the Heritage Resources among customer classes as part of its ratemaking jurisdiction pursuant to the [UCA]. # That stepped rates be implemented according to the principles and considerations set forth in Chapter [of the Heritage Contract Report]. The principles are repeated below for convenience: The Tier rate should reflect the long-term opportunity cost of new supply, where long-term is understood to include the acquisition cost required to obtain that supply; The quantity of power being sold to industrial customers at Tier of the stepped rate should be initially set at 0 per cent, and the Tier quantity should make up the remaining 0 per cent; and The Tier rate should be derived from the Tier rate and the Tier /Tier [0/0 split] to achieve, to the extent reasonably possible, revenue neutrality. B.C. Government Response The Heritage Contract attached hereto will be legislated as contemplated in the [00] Energy Plan. The attached version contains a number of changes from the version recommended by the Commission which are reflected in the balance of this document. BC Hydro Note: The Heritage Contract has been legislated in perpetuity pursuant to OIC /00 (November, 00). As discussed above in section..., the Heritage Contract is attached as Appendix A to Direction No.. Accepted. No government direction is necessary. This is consistent with normal regulatory board functioning and provides the necessary flexibility to allow Heritage Contract benefits to track the constant changes in electricity use that occur in different customer classes. BC Hydro Note: As set out above and in Attachment to the Workshop consideration memo (copy found at Appendix C-A), there are a number of important elements to the Heritage Contract scheme for purposes of the 0 RDA: BC Hydro s rates are established on a cost of service basis; New customers should be able to benefit from the Heritage Resources. In BC Hydro s view, the Commission is left with discretion to design rates for BC Hydro s customers that balance the competing interests of different rate classes, and to allocate the benefits of the Heritage Resources between rate classes subject to the two elements identified above. BC Hydro notes the MEM Policy Letter, which states that it continues to be B.C. Government policy that the benefits of the Heritage Assets should continue to accrue to all BC Hydro customers on the basis of their energy consumption and peak demand, and that the benefits should not be re-allocated between customer groups on a different basis or withheld from new customers Accepted. Further, the prospective Tier rate should be published periodically, even if no change is being made to the actual rate charged, for the purpose of providing a public benchmark against which others can make investment decisions on conservation or alternative supply. The Tier rate will reflect the cost of new supply more closely than would be the case if it were based on market indexes (Mid-C market). The Tier /Tier [0/0 split] provides a good balance between providing incentives and imposing unnecessary hardship. BC Hydro Note: refer to sections... and.. of the Application for additional detail. Page -

87 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Commission Recommendation # That a report be submitted to the Government of a three year review of the impacts of the stepped rates, including customers demand response and the percentage of customers loads served by third-party suppliers. #0 That prior to the completion of the rate design hearing the initial determination of the stepped rates and [TOU] be based on the same revenue requirement used for the determination of [RS] rates. # That load aggregation within multiplant ownership be allowed so long as it is restricted to operating units. # That the [CBL] used for applying stepped rates to industrial customers should be based on past experience adjusted for anomalies and reviewed annually. Further, that the Commission will continue to approve CBLs and resolve disputes as necessary. # That [TOU] rates should be implemented at the same time as stepped rates. # That industrial and large commercial customers eligible for BC Hydro s [RS] be required, at their election, to take service from BC Hydro from either the stepped rate or the [TOU] rate. [RS] should be terminated. # That Aquila [now FortisBC], [New Westminster] and [University of British Columbia (UBC)], as entities that distribute all or a significant portion of their load to others, be exempted from the application of stepped rates at this time, and form a new rate schedule(s). B.C. Government Response Accepted. BC Hydro Note: refer to sections... and.. of the Application for additional detail. Accepted. This is a practical approach that is consistent with the desire to make changes revenue neutral to the extent possible. Load aggregation within multiplant ownership will be allowed so long as it is restricted to operating units and that the units aggregated would qualify individually for stepped rates and [TOU] rates. Accepted. Adjustments to CBLs will be required on an ongoing basis and a well-defined dispute resolution mechanism will be beneficial. Accepted. It will be important to design stepped rates and [TOU] rates together to ensure that customer choice between them does not shift costs to other customers. It is expected that there will be some measure of integration between the rates to achieve this. BC Hydro Note: refer to sections... and.. of the Application for additional detail. Accepted and further that the stepped rates and [TOU] rates will be subject to conditions the Commission considers appropriate from time to time for application to the rates of BC Hydro for industrial and large commercial customers and as currently found in [TS] and [TS] to BC Hydro s [Electric Tariff]. BC Hydro Note: In section.. of the Workshop consideration memo at Appendix C-A, BC Hydro identified Recommendation # as a potential legal issue with respect to a Transmission Service RTP; refer to section... of the Application. Accepted. These customers are effectively distributors who sell the electricity they purchase onwards to end-use customers. Only the end-use customers can control the amount of electricity purchased by the distributors and the distributors purchases will therefore not be influenced by the wholesale rate structure. BC Hydro Note: refer to sections... and.. of the Application for additional detail. As described above in section..., the end result of the Heritage Contract Inquiry was HC, which has since been replaced by Direction No.. Direction No. sets out directions to the Commission with respect to RS and the implementation of the Heritage Contract. Page -

88 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Transmission Service Rate Application On March 0, 00 BC Hydro filed its Transmission Service Rate (TSR) Application. Among other things, BC Hydro asked for approval of the following which the Commission approved pursuant to Commission Order No. G--0 after a NSP and Negotiated Settlement Agreement (NSA): 0 0 Default RS, pursuant to which the Tier rate is set as a signal of BC Hydro s energy LRMC. The pricing principles for RS were subsequently re-set to reflect BC Hydro s latest reference for LRMC through the Commission review of BC Hydro s 00 TSR Re-pricing Application and subsequent Commission Order No. G--0. BC Hydro also submitted to the Commission a TSR three-year summary report on September 0, 00 which was an input into the Commission s own review, resulting in the Commission s Report to the Government on the British Columbia Hydro and Power Authority Transmission Service Rate Program dated December 0, 00 (Commission 00 TSR Report). The Commission considered the CBL Determination Guidelines (TS ) five times between 00 and 0. Refer to section. of the Application for more detail; RS (TOU rate) and TOU Transmission Service Agreement (TS 0). Refer to section.. of the Application for the reasons why BC Hydro is not proposing any changes to RS at this time; RS (exempt customers). RS is currently applicable to four transmission-voltage customers who have been exempted from stepped Reasons-for-Decision.pdf 00.pdf. F00: TS amendment for CBL aggregation notice and leap year approved by Commission Order No. G--0; F00: TS amendment for updated CBL adjustment practices approved by Commission Order No. G--0; F00: TS amendment for plant capacity increases with DSM approved by Commission Order No. G--0; F0: TS amendments for customer-funded DSM project recognition, duration and expiry; tariff principles; operating hour changes and other clarity-related change approved by Commission Order No. G-0-; F0: TS amendments for RS customers with self-generation approved by Commission Order No. G--. Page -

89 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 (inclining block) rates: New Westminster, UBC, SFU and YVR. The issue of exemption from stepped rates arose during the 00 Heritage Contract Inquiry. As noted above in Table - above, Recommendation # of the Heritage Contract Report recommends exemption of New Westminster and UBC from the application of stepped rates on the basis that they are entities that distribute all or a significant portion of their load to others. This recommendation is incorporated into subsection () of Direction No.. Accordingly, a new rate for New Westminster and UBC, RS, was created. During the NSA, SFU and YVR indicated they would seek an exemption from stepped rates since they have similar characteristics to the two customers already exempted. The Commission confirmed exemption of SFU and YVR by way of Commission Order No. G-0-0. Refer to section. of the Application for discussion of additional background to and BC Hydro s proposal for RS ; Amendments to RS (Modified Demand Transmission). RS is a non-firm (interruptible) rate available at BC Hydro s discretion to Transmission Service customers in locations: () that are transmission-constrained; and/or () market opportunities arise which allow for a different HLH time period. Refer to section.. of the Application; Amendments to RS 0 (Transmission Service Standby and Maintenance Supply). As part of the 00 TSR Application NSA, it was agreed that RS 0 would be addressed in a subsequent Commission review process as some stakeholders were concerned with BC Hydro s proposal to base the RS 0 energy rate on the Mid-C hourly index due to potential price volatility. In the 00 Transmission Service Outstanding Matters Application, BC Hydro Note that the exemption originally extended to Aquila, now FortisBC. In May 0, BC Hydro applied to the Commission to replace the PPA with FortisBC under RS 0. The PPA incorporates a two tranche pricing structure Tranche up to,0 GWh/year reflects an energy charge equal to that of BC Hydro s customers on RS. The Tranche price reflects BC Hydro s energy LRMC. The Commission approved the new PPA through Commission Order No. G-0-; _BCH_PPA-RS%00-TS-N o--and-_decision.pdf. Page -

90 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 proposed that the RS 0 energy rate should be the same as the RS Tier price, a per incident Administrative Charge of $0 and no demand charge. BC Hydro s proposal for RS 0 was approved by the Commission pursuant to Commission Order No. G--0. Refer to section.. of the Application for a discussion of additional background to and BC Hydro s proposal for RS 0; and Termination of a number of Transmission Service rate schedules, including RS discussed in section... above, and RS (Turbine Turndown Energy Rate) due to lack of use. BC Hydro examined RS as part of the development of its Transmission Service freshet rate pilot proposal described in section.. of the Application Rate Design Application The 00 RDA was BC Hydro's first comprehensive RDA since. The scope included six of seven BC Hydro rate classes Transmission Service rate structures were not addressed as these had been reviewed in 00 and BC Hydro s Distribution extension provisions found in section of the Electric Tariff. The Transmission extension provisions in TS were not part of the 00 RDA review. The principal 00 RDA issues were: 0 BC Hydro s COS. One intervener advocated a marginal COS approach to allocate BC Hydro s revenue requirement which the Commission rejected. Other COS issues included Heritage hydroelectric cost classification, Generation demand and Transmission cost allocation, and Distribution cost classification and allocation. Refer to section.. of the Application for a description of how the Commission s COS-related directives contained in its decision concerning BC Hydro s 00 RDA have been addressed; LGS rate restructuring: BC Hydro proposed to flatten the LGS demand and energy charges (the LGS rate class was defined in the 00 RDA as customers Supra, note. Page -

91 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 with demand at kw and over). BC Hydro considered that the proposed three year phase-in provided an appropriate balance between sending more efficient price signals and mitigating the impact on adversely affected customers. The proposed LGS rate was denied. 00 RDA Direction provided that BC Hydro was to file with the Commission an application for a rate structure or rate structures that encourage conservation without unduly benefitting or harming any of its customers in the [LGS] class and this led to BC Hydro s 00 LGS Application described in section... below; E-Plus rates: BC Hydro proposed to phase-out E-Plus rates over a 0-year period from April, 00 to March, 0. The Commission denied BC Hydro s proposal. Pursuant to 00 RDA Direction, BC Hydro was instructed to pay more attention to the exercise of its rights under the [E-Plus] Rate Schedules and to invest the necessary time and resources to ensure that its E-Plus customers comply with the Special Conditions of the [E-Plus] Rate Schedules. The Commission approved restricting the ability to transfer the E-Plus rate to a new customer by amending the Availability clause to state that the E-Plus rate is available only in Premises where there has been no change in customer since April, 00. Refer to section.. of the Application for a description of how BC Hydro responded to 00 RDA Direction and for BC Hydro s proposal with respect to its E-Plus rates; Standard charges: BC Hydro proposed updates to the standard charges set out in section of the Electric Tariff to reflect then current costs. BC Hydro s 0 RDA proposals for Electric Tariff terms and conditions, including standard charges, is contained in Chapter of the Application; Distribution extension policy: BC Hydro proposed to simplify and improve the transparency of its Distribution extension policy. This subject is not addressed any further given that BC Hydro will be addressing Distribution extension policy as part of 0 RDA Module (refer to section.. of the Application). Page -

92 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 The Commission in the 00 RDA Decision (page ) concluded that rate design applications should be informed by the views of BC Hydro's customers prior to the filing of the application. BC Hydro designed an extensive 0 RDA stakeholder engagement process including offering PACA funding for purposes of its pre-filing topic-specific workshops. Refer to section.. above. The Commission concluded that the eight Bonbright criteria are consistent with the UCA s fair, just and not unduly discriminatory test. BC Hydro proposed a 0 per cent maximum bill impact threshold as part of the Bonbright customer understanding and acceptance criterion. Specifically, BC Hydro endeavored to limit bill impacts arising from its proposals to no more than 0 per cent per year, exclusive of any changes arising from RRA-related increases. The 0 per cent bill impact test was not a rule intended to be binding in every circumstance. For example, BC Hydro submitted that it is acceptable for bill impacts to exceed 0 per cent per year where the absolute dollar value of the increase is very small. BC Hydro was criticized for excluding RRA increases from the 0 per cent maximum bill impact test, and in response, the 0 per cent bill impact test used to develop the 0 RDA is inclusive of RRA increases. Refer to the discussion of the Bonbright criteria in section.. below Residential Inclining Block Rate BC Hydro s RIB rate was approved by Commission Order No. G--0 and made effective on October, 00. The RIB rate is a two-step inclining block rate, with the first portion called the Step- energy rate and the amount above that the Step- energy rate. The Commission established the Step- energy rate/step- energy rate threshold at,0 kwh per two-month billing period, being more or less 0 per cent of the median consumption of BC Hydro s residential customers of about 0 kwh per month. In support of this threshold the Commission cited RS which sets 00 RDA Decision, supra note, page. G--0_BCH_RIB.pdf. Supra, note 0, pages 0 to 0. Page -

93 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 individual thresholds at 0 per cent of each customer s baseline. The Commission concluded that a suitable cap for the Step- energy rate was BC Hydro s most recent estimate of new supply at plant-gate grossed up for line losses. BC Hydro used the levelized weighted-average plant-gate price of its most recent power acquisition process at the time as a proxy for its energy LRMC for rate setting purposes. The Commission found that the estimate of new supply at plant gate should not include the incremental cost of transmission or distribution. 0 Further, in its decision concerning BC Hydro s 00 RIB application, the Commission found Bonbright s eight rate design criteria to be consistent with the UCA test of fair, just and not unduly discriminatory and form an appropriate foundation for inclining block rate structures. Since 00, the RIB rate has been reviewed three times in Commission processes as follows: 0 On March, 00, BC Hydro requested approval for F0 pricing principles under which BC Hydro would uniformly increase the three components of the RIB rate by the amount of the approved F0 RRA rate increase. In the subsequent Commission Order No. G--0 issued on March, 00, the Commission granted approval for BC Hydro to apply its interim F0 rate increase uniformly across the RIB basic charge, the Step- energy rate and Step- energy rate. The F0 RRA and the F0 pricing principles applicable to the RIB were resolved through the Commission s approval of the F0 RRA NSA; On December, 00, BC Hydro filed an application for approval of RIB pricing principles from F0 onward under which BC Hydro would uniformly 0 Ibid, pages 0 to 0. Ibid, page. F RRA, Appendix A; B-_BCHydro-FRR-Application.pdf. Commission Order No. G-0-0; G-0-0_BCH-F0-Revenue-Requirements- Reasons-WEB.pdf. Page -0

94 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 increase the three components of the RIB rate by the amount of any approved general rate increase. BC Hydro used the levelized weighted-average plant-gate price of the 00 Clean Power Call, the most recent power acquisition process at the time, as a proxy for its LRMC for rate setting purposes. Commission Order No. G-- set the following RIB rate pricing principles for the F0 to F0 period: Step- energy rate increases up to the higher of the Class Average Rate Change (CARC) or 0 per cent bill impact, subject to the Step- energy rate increasing by no less than the annual rate of inflation; and the Step- energy rate calculated residually but increases by no less than the annual rate of inflation. In its Reasons for Decision accompanying Commission Order No. G--, the Commission emphasized that the LRMC for new supply is the appropriate referent for the Step- energy rate. The Commission also found in its 0 decision concerning FortisBC s 0 RIB application that pricing electricity above LRMC is not economically efficient; On November, 0, BC Hydro filed its 0 RIB Rate Re-Pricing Application. BC Hydro requested approval for F0-F0 pricing principles under which BC Hydro would uniformly increase the three components of the RIB rate by the amount of the approved F0/F0 RRA rate increase. BC Hydro did not seek any change to the RIB rate other than the proposed pricing principles. The Commission approved BC Hydro s proposed pricing Note that as a result of the Rate Rebalancing Amendment, for purposes of this Application, CARC can arise from any or all of the following: revenue requirement changes and rate rider changes. Commission Order No. G--, Reasons for Decision, Appendix A (0 RIB Re-Pricing Decision), page of ; G--_BCH-RIB-Re-Pricing-Reasons.pd f. The Commission determined that the LRMC of new supply continues to be the appropriate referent for the Block- energy rate and stated that it accepts Fortis submission that pricing electricity above FortisBC s long-run marginal cost is not economically efficient in its decision concerning Fortis RIB; In the Matter of FortisBC Inc. Residential Inclining Block Rate, Decision, January, 0, page 0; FBC%0Inc-RIB_Decision-WEB.pdf. Page -

95 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 principles, and as described in section.. of the Application, ordered BC Hydro to file a RDA in F0. In the 00 RIB Decision, the Commission noted that BC Hydro did not explain how stakeholder engagement activities informed its selection of the RIB as the preferred alternative. In both this Chapter in section.., and in the remaining chapters, BC Hydro explains how its extensive 0 RDA stakeholder engagement process was used to, among other things, identify issues with current rate structures and to narrow the alternatives to be examined in detail LGS and MGS On October, 00 BC Hydro filed its Large General Service Application (LGS Application) seeking approval of: Initial segmentation of the then existing LGS rate class into two rate classes LGS with monthly peak demand of 0 kw or more in the preceding month period, and MGS with monthly peak demand between kw and 0 kw; 0 A two part baseline energy rate structure for LGS. The first part (Part ) would be applied against the historic consumption level (baseline) of each account. The second part (Part ) would be equal to BC Hydro s energy LRMC and would be applied against the difference between the account s currently monthly (billed) energy consumption and its baseline. A Part charge would be incurred when billed consumption exceeds the baseline, and a credit would be earned when billed consumption is less than the baseline; A flat energy rate for MGS, phased-in over a six-year period; and No changes to other rare structure elements such as demand charges. Commission Order No. G--; easons.pdf. 00 RIB Decision, pages to. Page -

96 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 The LGS Application proceeded to a NSP with the result that the parties agreed to a two-part baseline rate structure for both the new LGS and MGS rate classes. The Commission approved the resulting NSA pursuant to Commission Order No. G-0-0 on June, 00. Refer to sections.. and.. of the Application for a detailed description of the existing LGS and MGS rate structures, including implementation dates and evaluations Industrial Electricity Policy Review On February, 0, the B.C. Government struck a task force to review existing industrial electricity policy. The IEPR task recommendations and B.C. Government responses that informed 0 RDA Module (numbered in accordance with the B.C. Government issued IEPR backgrounder) 0 are set out in Table -. Table - Relevant IEPR Task Force Recommendations and B.C. Government Responses IEPR Task Force Recommendation IEPR Recommendation : Continue using postage stamp rates. IEPR Recommendation 0: End use rates which have no impact on ratepayers could be considered but those which impact ratepayers and are directed by Government should be paid for by taxpayers and not ratepayers. IEPR Recommendation : BC Hydro should develop a revised retail access program. B.C. Government Response Government will continue to use postage stamp rates. Note: Refer to section... above. A rate design review process will be launched to examine ways to provide industrial customers with more options to reduce their electricity costs. A rate design review process will be launched to examine ways to provide industrial customers with more options to reduce their electricity costs. Note: As described above in section..., the Commission is prevented by section of Direction No. from setting rates for BC Hydro that would result in the direct or indirect provision of unbundled transmission service to retail customers in its service area or those who supply such customers, except on application by BC Hydro. This covers the two forms of physical retail access reviewed by the IEPR task force namely, physical access to the spot market, or to B.C.-based IPP and generation other than Page -

97 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology IEPR Task Force Recommendation IEPR Recommendation : Government need not act on the Commission 00 TSR Report until BC Hydro s surplus has diminished and the effect of the other recommendations in this report can be seen. IEPR Recommendation : BC Hydro should work with its industrial customers and the Commission to develop options that take advantage of industrial power consumption flexibility such as TOU rates and interruptible rates. B.C. Government Response BC Hydro s. In BC Hydro s view Direction No. does not prevent the Commission from setting a RTP rate because Transmission Service customers would be buying some portion of electricity from BC Hydro (based on Mid-C or other market pricing). Refer to section... of the Application. Government accepts this recommendation. Note: BC Hydro s energy load-resource balances (LRBs) are discussed in section.. below in the context of LRMC for rate making purposes. A rate design review process will be launched to examine ways to provide industrial customers with more options to reduce their electricity costs. BC Hydro will implement a voluntary load curtailment program with industrial customers starting in 0. Note: BC Hydro initiated a two to three-year load curtailment program pilot on August. As discussed in Attachment to the Workshop Consideration Memo (copy at Appendix C-A of the Application), BC Hydro is of the view the load curtailment pilot is a program as referenced in the definition of demand-side measure in section of the CEA, and therefore expenditures associated with the load curtailment pilot are the subject of a DSM expenditure determination request submitted to the Commission under subsection.()(a) of the UCA. The load curtailment pilot is not a rate as defined by section of the UCA because the essential element of a rate is compensation of a public utility, and under the load curtailment pilot there is no compensation of BC Hydro; rather, BC Hydro pays participating Transmission Service customers to be on stand-by for curtailable events. Nor is load curtailment a service as defined by section of the UCA. BC Hydro is not revising RS, the existing Transmission Service TOU rate, at this time for the reasons set out in section.. of the Application. BC Hydro is proposing a new Transmission Service rate option a freshet rate described in section.. of the Application... Current Environment Context... Smart Meter Infrastructure BC Hydro s installation of smart meters is per cent complete with over. million meters installed throughout BC Hydro s service area. The new metering system allowed BC Hydro to better understand the load characteristics of its distribution Page -

98 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 voltage customers and to more accurately allocate costs within the F0 COS study described in Chapter of the Application. For example, in the 00 RDA BC Hydro s COS study relied on a load research sample of about 00 residential customers and about,00 commercial customers. The collection of this data was done annually, took several months to complete and was labor intensive. Because the sample was so small, the customer class profiles created were general, sample redesign was not financially feasible and sample bias could have been an issue. With smart metering, BC Hydro has been able to analyze daily consumption patterns for each individual customer while using a sample of approximately,000 customers to analyze hourly load shapes and conduct more in-depth load research. The additional data from smart metering has increased the accuracy of BC Hydro s load profile information which is a key input into cost allocation with the F0 COS study. With the capability to create almost on-demand detailed customer load profiles, COS analysis, rate design and peak load forecasting can be improved. Going forward, BC Hydro will be able to use smart metering information to measure losses on individual feeders and further improve the distribution loss assumptions that are used in the F0 COS study and some rates within the Electric Tariff. The implementation of smart meters has changed the manner in which BC Hydro can disconnect and reconnect customers. Prior to the implementation of smart meters customers were physically disconnected by a BC Hydro technician going to the property and disconnecting service. With smart meters customers are disconnected and reconnected remotely through a signal sent to the meter. As a result, the cost drivers for the default Minimum Reconnection Charge has changed. This is further discussed in section.. of the Application. Smart meters also played a role in determining BC Hydro s preferred rate design for RS 0, the Residential E-Plus rate discussed above in sections... and... BC Hydro proposes to amend Special Condition of RS 0 to make the rate truly interruptible; refer to section. of the Application. Residential E-Plus interruptions Page -

99 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 would be enacted remotely by BC Hydro for those Residential E-Plus customers with smart meters that have remote disconnect/reconnect (RDR) capability.... Energy Long-Run Marginal Cost As described above in sections... (for RS ),... (for the RIB rate) and... (for LGS and MGS rates) above, various Commission rate design decisions have referenced BC Hydro s energy LRMC for rate-making purposes. As pointed out by Commission staff at Workshop, one of the most significant changes since the establishment of rate structures for BC Hydro s Residential, MGS and LGS customers between 00 and 00 has been the reduction in BC Hydro s energy LRMC as set out in the 0 IRP. LRMC can be defined as the change in the long-run total cost resulting from a change in the quantity of output produced. In short, LRMC represents the price of the most cost-effective way of satisfying incremental customer demand where existing resources are insufficient to meet that demand. The standard economic technique used to determine LRMC is to calculate the minimum present-day view of the cost of meeting a permanent increment (or decrement) of demand in which all capital and operating production inputs can be considered variable. BC Hydro uses an approach where the incremental resource acquisitions needed to supply future requirements are priced on a levelized unit energy cost (UEC) basis to aid in comparing resources with differing attributes. BC Hydro uses the energy LRMC in its 0 IRP to signal the value that should be placed on acquiring new energy resources. Over the next ten year period, these energy resources include DSM savings (through BC Hydro DSM programs, government codes and standards and BC Hydro rate structures such as RS and the RIB rate), and renewals of existing EPAs with IPPs. CEA section defines demand-side measure in part to mean a rate, measure, action or program undertake to: (a) to conserve energy or promote energy efficiency; (b) to reduce the energy demand a public utility must serve; or (c) to shift the use of energy to periods of lower demand. Codes and standards are public policy Page -

100 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 LRMC and Integrated Resource Plan Energy Load-Resource Balance While there has always been considerable uncertainty regarding the future long-run cost of new B.C.-based supply, the 0 IRP is the first time that DSM and individually negotiated renewals of existing IPP EPAs whose terms expire over the next ten years or so are the marginal resources. The remainder of this section highlights the LRMC based on the 0 IRP s recommended actions for meeting the forecasted energy gap from F0 onwards. As described in section... above, prior to BC Hydro s 0 RIB Re-Pricing Application, BC Hydro s RIB and RS rates used the weighted-average plant-gate price of BC Hydro s most recent IPP power acquisition process for energy as a proxy for its energy LRMC. BC Hydro had a significant projected need for new resources over the past 0 years and the marginal resource was the acquisition of green-field clean or renewable IPPs. The last energy LRMC reflected the results of the most recent, broadly-based power acquisition process (e.g., the 00 Clean Power Call results). Green-field clean or renewable IPPs were the marginal resource since there were insufficient cost-effective alternative resources available to provide the needed supply for customers that met the requirements of the CEA, and in particular the subsection (c) CEA British Columbia s energy objective to generate at least % of electricity in British Columbia from clean or renewable resources. Modifications to the CEA self-sufficiency requirements referenced in section.. of the Application, and a lower load forecast, resulted in a reduced forecasted need for new energy resources. The next green-field IPP clean or renewable power instruments enacted by governments to influence energy efficiency. Examples include building codes, energy efficiency regulations, tax measures, and local government zoning and building permitting processes. Plant-gate estimates exclude any incremental delivery costs of either transmission or distribution. The term clean or renewable resource is defined in section of the CEA to mean biomass, biogas, geothermal heat, hydro, solar, wind or any other prescribed resource. The Clean or Renewable Regulation, B.C. Reg. /0 adds biogenic waste, waste heat and waste hydrogen to this list. Natural gas-fired generation is not a prescribed clean or renewable resource. As noted in section.. of the Application, the Electricity Self-Sufficiency Regulation as amended by B.C. Reg. /0 (OIC No. 0 (0)) requires BC Hydro to plan to average water conditions as opposed to critical water conditions. Page -

101 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology acquisition process is not expected within the 0-year planning horizon assuming all Site C units come into service in F0, unless LNG needs exceed about,000 GWh/year. Even with this amount of LNG load, the need for such an acquisition process is not until F0. As described further in this section, BC Hydro currently has sufficient alternative cost-effective B.C.-based resources to meet expected future energy needs without LNG demand by: Pursuing the DSM target (0 IRP Recommended Action ); and 0 0 Undertaking IPP EPA renewals and Site C (0 IRP Recommended Actions and ) as the main elements to fill the identified energy gap after pursuit of the DSM target. BC Hydro estimates that LNG projects could add between about 00 GWh to,00 GWh/year of additional energy demand, corresponding to about 00 MW to 00 MW of additional peak demand. Supplying the low- to mid-range of LNG load (up to about,000 GWh/year) will not have a material impact on the energy LRMC because BC Hydro has enough energy resources to serve such LNG load with the pursuit of the cost-effective B.C.-based resources listed above. However, potential LNG load is one source of demand uncertainty and therefore LRMC uncertainty. The 0 IRP provides the analysis underpinning the energy LRB for BC Hydro s integrated system. A LRB is the difference between: () BC Hydro s annual load forecast, which projects BC Hydro customer demand over a 0-year period (in the case of the 0 IRP this is the December 0 Load Forecast) and () supply from existing and committed DSM and supply-side resources. There is a deficit or gap (i.e., a shortfall) if forecasted customer energy demand exceeds the existing and committed resources available to serve such load. Figure - is derived from the 0 IRP and shows that there is a need for new energy resources beginning in F0 without future DSM initiatives (including rate structures such as the RIB rate and RS ). Page -

102 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Figure - Energy LRB: Before Implementation of 0 IRP Recommended Actions The 0 IRP proposes that BC Hydro meet the forecasted energy gap for the next 0 years predominantly by pursuing the DSM target, renewing some existing EPAs at the time they expire and Site C: 0 The IRP provides that Recommended Action on DSM would deliver electricity savings at an average UEC of about $/MWh (on a Total Resource Cost (TRC) basis) with a range of costs among different initiatives; Table - of the 0 IRP provides that the net TRC range for DSM programs is $/MWh to $/MWh ($F0). BC Hydro tested varying levels of DSM in the 0 IRP The TRC measures the overall economic cost of a DSM initiative from a resource options perspective, including both participant and utility costs. As discussed at Workshop a, BC Hydro is guided by the TRC test as described by the California Standard Practice Manual: Economic Analysis of Demand-Side Programs and Projects (October 00); copy available at California Energy Commission s website at Net TRC shown is net of generation, transmission and distribution capacity benefits, non-energy benefits and natural gas savings benefits. Page -

103 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 and concluded that pursuit of IRP Recommended Action is more cost-effective than a DSM option called DSM Option that would see an increase in expenditures on programs but entail no changes to BC Hydro s rate structures. The IRP determined that DSM Option is a viable resource (i.e., a resource that can be considered under prudent utility planning). Hence not all viable DSM savings are being acquired and DSM is a marginal resource; and BC Hydro is pursuing EPA renewals on a cost-of-service basis. Other considerations will be past performance, certainty of continued operation and system support characteristics. BC Hydro expects that EPAs will be renewed where the cost-of-service is less than BC Hydro s opportunity cost for replacement supply. On average bioenergy EPA renewals are expected to be approximately $/MWh and run-of-river renewals are expected to be approximately $0/MWh ($F0). The energy LRB after implementation of IRP recommended actions (DSM, EPA renewal planning assumptions and Site C) with and without LNG is depicted in Figure -. Page -0

104 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Figure - Energy LRB: After Implementation of 0 IRP Recommended Actions 0 Non-Firm Rates and Market Pricing The wholesale electricity market (referred to as spot market) provides short-term energy at a variable price floating with the market. There is an argument that the reference for the cost of providing energy for non-firm (interruptible) service is the spot market. This issue is discussed in sections. and. of the Application in the context of BC Hydro s three existing non-firm, self-generation-related rates: RS (Distribution Service IPP Station Service), RS (Transmission Service - IPP Station Service) and RS 0 (Standby and Maintenance). However, the spot market is not the appropriate referent for firm service energy rate pricing. A long-run view of the cost of new supply for a period of at least ten years is appropriate for designing rates because there is a need for some stability in rates. Using the spot market would result in a highly variable, confusing price signal. Page -

105 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Table - below summarizes market price volatility in 0 (January and July for both HLH and LLH (all values are in USD/MWh)). Table - Market Prices, January-July 0 HLH ($) Maximum.. Minimum. 0. Average.. LLH ($) 0 0 Furthermore, the spot market does not meet the definition of self-sufficiency described above in section... Summary: Energy LRMC DSM and EPA renewals are marginal resources until about F00, after which BC Hydro would require green-field clean or renewable IPPs. In the 0 IRP, the energy LRMC was reduced from the levelized weighted-average plant-gate price for firm energy grossed up for line losses arising 00 Clean Power Call to about $00/MWh. This reduced value informed the levels of DSM modelled in the 0 IRP and the upper price limit on IPP EPA renewals. Depending on the amount of LNG load that BC Hydro ultimately serves and whether non-lng load growth occurs as expected, the LRMC may be reduced to about $/MWh and still provide an adequate supply of resources for expected load through the same period. The energy LRMC outlook is as follows: $/MWh-$00/MWh from F0 to about F00. Adjustments to Energy LRMC for Rate-Making Purposes When the LRMC for ratemaking purposes was based on power acquisition processes (e.g., 00 RIB Application), the green-field IPP acquisition-related plant gate prices were grossed up for line losses. The current energy LRMC range of. cents/kwh to 0.0 cents/kwh is based on DSM and IPP EPA renewals adjusted Page -

106 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology for delivery to the Lower Mainland, and therefore BC Hydro only adjusts for distribution-related losses for Distribution service. The 0 IRP energy LRMC range is in $F0. Several participants in the 0 RDA workshop process described in section... above commented that the 0 IRP energy LRMC range should be inflated for rate-making purposes. BC Hydro used the B.C. Consumer Price Index (CPI) for this purpose as follows: F0: -0. per cent; F0:. per cent; F0:. per cent; F0-F0:.0 per cent. The resulting inflation adjusted energy LRMC range for the 0 RDA rate pricing principle period of F0-F0 is set out in Table -. 0 Table - Inflation Adjusted Range in Energy LRMC for Transmission Service Fiscal Year Lower End of Energy LRMC Range (cents/kwh) Upper End of Energy LRMC Range (cents/kwh) F F0.. F F0. 0. F0. 0. F F0. 0. BC Hydro reviewed distribution losses and finds that they are still reasonably close to per cent of distribution load. The source of distribution loss information is described in section... of the Application. The resulting distribution loss and inflation adjusted energy LRMC range for the 0 RDA rate pricing principle period of F0-F0 is set out in Table -. The F0 and F0 actuals are from BC Stats May 0; inflation rates for F0-F0 are from December 0 BC Treasury Board. Page -

107 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Table - Inflation Adjusted Range in Energy LRMC for Distribution Service Fiscal Year Lower End of Energy LRMC Range (cents/kwh) Upper End of Energy LRMC Range (cents/kwh) F F0 (Distribution loss per cent): F F0. 0. F0..0 F0.. F0.. F Capacity Long-Run Marginal Cost As shown in the 0 IRP, the next generation capacity resources that could be developed and are being advanced for contingency planing purposes are: 0 Revelstoke Unit (Rev ) with a Unit Capacity Cost (UCC) of $0 to $ per kilowatt-year (/kw-year). Rev would add MW of dependable capacity to the BC Hydro system; Natural gas-fired simple-cycle gas turbine generators (SCGTs) with a UCC of $/kw-year. In the case where the expected LNG load of,000 GWh/year materializes, there is a need for about 00 MW of new system generating capacity resources. The 0 IRP identified SCGTs located on the north coast to meet this need because of additional reliability benefits in that region. 0 For purposes of this Application and as identified in the 0 IRP, the LRMC for capacity resources is based on Rev. Rev is the most cost-effective generation capacity resource on a unit cost basis. The 0 IRP energy LRMC range identified above is for annual firm energy and does not include avoided generation capacity costs. The question of whether the LRMC for RIB ratemaking should include a capacity value was raised by stakeholders at Workshops and. BC Hydro indicated that including a capacity Page -

108 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 value based on the Rev UCC would increase the energy LRMC by about $/MWh ($F0). BC Hydro referenced FortisBC s 0/0 DSM filing, which used a LRMC of $/MWh for firm energy. FortisBC stated that this LRMC is inclusive of generation capacity with no need for adjustment to capture avoided generation capacity costs. FortisBC included a capacity estimate of $.0/kW-year as a proxy to represent the value of avoided transmission and distribution capital expenditures due to DSM program energy conservation to arrive at an overall LRMC $/MWh figure. BC Hydro noted at Workshop that the Commission in the 00 RIB Decision decided that estimate of supply at plant gate should not include the incremental cost of transmission or distribution. 00 Several Workshop participants advanced two grounds for including a generation capacity value in the energy LRMC for purposes of the RIB Step rate: () the RIB rate contains no demand charge; and () while the RIB is an energy conservation rate, it delivers anticipated capacity savings. In section.. of the Workshop consideration memo (copy at Appendix C-A), BC Hydro communicated its view that adding a capacity value to signal these savings could confuse the pricing of the RIB with its purpose, which is energy conservation not peak capacity reduction. BC Hydro also referenced the 0 RIB Re-Pricing Decision where the Commission stated that the RIB Step rate should be based on a price signal for customers to understand what is happening to the cost of energy they will consume in the future [emphasis added]. 0 Use of BC Hydro s energy LRMC for energy conservation rate structures such as the RIB rate is consistent with past Commission RIB decisions noted in section... above. However, to illustrate the impacts of the addition of a generation capacity value to the LRMC, BC Hydro included the upper end of the energy LRMC range with a generation capacity value (the Rev UCC) in various figures in Chapter. Based on a ratio between Residential load and system coincidence peak. FortisBC, Application for DSM Expenditure Schedules for 0 and 0, page ; B-_FBC-0--DSM-Application.pdf. 00 Supra, note 0, pages 0 to 0. 0 Supra, note, page of. Page -

109 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology. Rate Assessment Methodology In addition to using stakeholder input and prior Commission decisions to assess rate designs, BC Hydro employed the following: The eight Bonbright criteria (section..); Jurisdictional reviews for COS, and Residential, General Service and Transmission service rate design (section..); Rate design modelling for rate estimation and assessment of customer impacts (section..); and 0 0 External expert review (section..)... Bonbright Criteria Rate design is a complex process that must take into account multiple and competing objectives and multiple stakeholder interests. As described in sections... and... above, the Commission has accepted that the eight Bonbright criteria are consistent with the UCA s fair, just and not unduly discriminatory test. At Workshop, BC Hydro provided a description of the Bonbright criteria and proposed ways to apply the criteria to rate structures generally. BC Hydro grouped the eight criteria into four categories for stakeholder engagement purposes: () Economic efficiency; () Fairness; () Practicality; and () Stability. The eight Bonbright criteria are described in Table -, together with BC Hydro s proposed application for Module purposes. Note that the Bonbright criteria are presented in no particular order and are numbered solely for ease of reference. Page -

110 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Table - Bonbright Criteria and Application for Rate Design Evaluation Bonbright Criteria Grouping BC Hydro Proposed Application of Criteria to Rate Structures Generally. Price signals that encourage efficient use and discourage inefficient use. Fair apportionment of costs among customers. Avoid undue discrimination. Customer understanding and acceptance, practical and cost effective to implement. Freedom from controversies as to proper interpretation Economic Efficiency Fairness Fairness Practicality Practicality Energy LRMC reference; energy conservation (total GWh). Inter-class: COS and resulting R/C ratios; Intra-class: Cost causation, including cost recovery through fixed versus variable charges; bill impact to analyze cost shifts within the particular rate class. Note that revenue neutrality as described in section. of the Application and referenced under the Bonbright recovery of revenue requirement criterion below can be a measure of fairness as its purpose in rate design is to avoid cost-shifting between the rate classes. Proposed measurement is the same as for Bonbright criteria (). The meaning of undue discrimination has been the subject of a significant amount of case law and it is a matter of the Commission s opinion as to what constitutes undue discrimination. Generally speaking, BC Hydro s accepts Bonbright s view that rates are unduly discriminatory when they have a serious distortion effect on the relative use of the service. This means rate structures must not be divorced from the nature and quality of the associated service, including cost of service. BC Hydro and stakeholder opinion with BC Hydro giving greater weighting to the views of customers taking service under the particular rate structure being assessed unless there are cost implications for other customer classes; Maximum and customer bill impact (%, including the 0% bill impact test); One-time implementation and sustaining costs (quantified if possible, qualitative ranking otherwise); Jurisdictional references provided the different legal and regulatory regimes, and customer characteristics, are taken into account (refer to section.. below). Proposed measurement is the same as for Bonbright criteria (). Page -

111 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology Bonbright Criteria Grouping BC Hydro Proposed Application of Criteria to Rate Structures Generally. Recovery of the revenue requirement Stability Forecast revenue neutrality. This concept is introduced in section. of the Application and discussed in Chapters, and.. Revenue stability Stability Proposed measurement is the same as for Bonbright criteria ().. Rate stability Stability Design, pricing and transition certainty; Degree of rate structure changes relative to the Status Quo rate structure being assessed. Note: As set out in Table - in Chapter, overall BC Hydro seeks to minimize unexpected changes that can be seriously adverse to existing customers Application of Bonbright Criteria and Stakeholder Input Role of Jurisdictional Assessment In response to comments from AMPC, BC Hydro modified its proposed application of the Bonbright criteria to include relevant jurisdictional assessment as part of the customer understanding and acceptance criterion. Refer to section.. for additional detail. Ten Per Cent Bill Impact Test BC Hydro defines bill impact is the percentage change in a customer s annual bill from one year to the next if consumption stays the same. As discussed in Chapters and, BC Hydro uses the 0 per cent bill impact test as an amber signal rather than a stop or go constraint. For example, BC Hydro believes that it is acceptable for bill impacts to exceed 0 per cent per year where the absolute dollar value of the increases is very small. Several stakeholders questioned BC Hydro s proposed application of the 0 per cent bill impact test forming part of the customer understanding and acceptance criterion, and in particular whether inclusion of RRA increases would use up room available to accommodate rate design impacts. As referenced above in section..., since the 00 RIB Decision BC Hydro has used a 0 per cent maximum impact test inclusive Page -

112 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 of all-in costs consisting of: RRA increases (the Direction No. rate caps of per cent in F0,. per cent in F0 and per cent in F0 on average described in section... above); the DARR; and rate changes due to rate design. Given the Rate Rebalancing Amendment discussed in section..., rate rebalancing is not included in the 0 per cent bill impact test. The 0 per cent bill impact test is applied to the single most adversely impacted customer (sometimes referred to as the 00 th percentile customer on bill impact) for modelling purposes. The customer with the most adverse bill impact is the customer with the largest percentage increase in the customer s annual bill from one year to the next if consumption stays the same. Use of the customer with the most adverse impact as part of the bill impact test is consistent with BC Hydro s 0 RIB Re-Pricing Application. Some stakeholders suggested using the percentile or 0 percentile. After calculating the bill impacts of all customers and then sorting from the highest percentage increase to the lowest percentage increase, the customer that is per cent of the way up the ranking would be the th percentile customer on bill impact. In BC Hydro s view, applying the 0 per cent test to any threshold level other than the most adversely impacted customer will lead to definitional problems or will have unintended consequences. Efficiency During the 0 RIB Re-Pricing Application SRP, BC Hydro agreed with Commission staff that how the Bonbright efficiency criterion is applied to the RIB rate and other rate structures was in scope. As raised by Commission staff at Workshop a, the main Bonbright efficiency criterion issue concern: Whether or not BC Hydro s energy LRMC remains the appropriate referent for the Step of the RIB rate; and Whether BC Hydro should consider the effects of a particular rate on (i) efficient customer consumption and investment decisions including the potential to Page -

113 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 impact fuel switching from electricity to natural gas; (ii) efficient utility investment and operational decisions, and (iii) innovation. 0 In BC Hydro s view, considering the effects of a particular rate is a different issue than using LRMC as a basis for designing a rate. The Commission found on three occasions that LRMC is the appropriate reference for Step (00 RIB Decision and the 0 RIB Re-Pricing Decision discussed in section... above; and FortisBC 0 Residential Conservation Rate Application Decision 0 ) as it sends a signal to customers as to the price of acquiring marginal energy. Any lower price would incentivize inefficient electricity usage, and any higher price would discourage or unfairly penalize efficient usage. BC Hydro does not see a principled basis for setting the RIB Step price without using LRMC as a referent. At Workshop BC Hydro agreed with BCSEA that the pricing of the Step rate in reference to the energy LRMC should not be regarded as a hard and fast rule. Refer to Attachment (page ) to the Workshop a/b Consideration Memo (copy at Appendix C-B of the Application); and to section.. of the Workshop Consideration Memo (copy at Appendix C-A) for additional detail. In BC Hydro s view, it is sufficient to consider that from the utility viewpoint of efficient investment and operational decisions, the RIB rate (and RS and DSM programs/codes and standards)-related savings decrease the amount of supply side energy and capacity resources that would be required to meet service obligations. Additional Rate Design Criteria Several stakeholders asked BC Hydro whether new criteria in addition to Bonbright could assist with rate design, although no examples were provided other than by BCOAPO advancing that BC Hydro s low-income customers should have access to enough electricity to ensure basic needs (such as health and comfort) are met at an 0 Refer to the RS 0 Decision, section.., note ; and FBR Stepped Rate Decision, section.., note. 0 In the Matter of FortisBC Inc. Residential Inclining Block Rate, Decision, page 0; FBC%0Inc-RIB_Decision-WEB.pdf. Page -0

114 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 affordable cost. As described in section. of the Application, BCOAPO ties affordability to low income rates, which are likely to be seen as unduly preferential to low-income customers or unduly discriminatory to the remaining customers who subsidize those rates because the low income rate would be based on the personal characteristics of the customer, divorced from the cost to deliver electricity to the premises. Accordingly, BC Hydro is of the view that the eight Bonbright criteria suffice for Module purposes as they have the advantage of being widely accepted by jurisdictions for rate deign purposes and are sufficiently flexible such that other criteria or tests are not required.... Bonbright Criteria Weighting BC Hydro does not see the Bonbright recovery of the approved revenue requirement criterion to be the primary focus of the Application. The Commission may not lawfully set rates that recover more or less than BC Hydro s revenue requirement; refer to section (d) of Direction No.. Thus this was not a criterion that is traded-off against the other Bonbright criterion. The sole issue concerning this criterion is the application of revenue neutrality to RS, as discussed in section.. of the Application. In addition, the Bonbright avoid undue discrimination criterion was not traded-off given that it is part of the UCA fair, just and not unduly discriminatory test set out above in section... In section.. of the Application, BC Hydro set out that it prioritizes the Bonbright customer understanding and acceptance, stable rates for customers, and fair apportionment of costs among customers criteria for purposes of 0 RDA Module. BC Hydro sought feedback on its rate priorities as part of Workshop. BCSEA commented that while it believed that the Bonbright efficiency criterion is important, it is evident that the complex LGS and MGS rates are not achieving the energy savings results predicted at the time of the 00 LGS Application, and accordingly BCSEA supports moving to simplified LGS and MGS flat energy rate Page -

115 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 structures to improve customer understanding of the rates. AMPC supports BC Hydro s rate priorities, and states that in its view in the past BC Hydro has given too much weight to the economic efficiency criterion. Commission staff ask whether BC Hydro should have different rate priorities for the different rate classes, and give an example involving the LGS and MGS rate classes: if the demand response of these customers is low, does this suggest that LRMC-based rate pricing should be given a lower priority? These written comments are found at Appendix C-B of the Application. BC Hydro s weighting of the Bonbright criteria is discussed in the individual rate design chapters (Chapter Residential; Chapter General Service Classes; and Chapter Transmission Service)... Jurisdictional Reviews The Commission found in the 00 RDA Decision that relevant examples of rate designs from other jurisdictions should be taken into consideration. 0 As described above in section..., BC Hydro considers jurisdictional assessment as part of the Bonbright customer understanding and acceptance criterion. What is considered to be a relevant jurisdiction may differ depending on which BC Hydro rate is examined.... Cost of Service As noted in section.. below, BC Hydro engaged the COS Consultants 0 to assist in completing BC Hydro s COS study, including the provision of COS-related jurisdictional assessment described in section. of the Application. The COS consultants examined nine Canadian and U.S. utilities in jurisdictions with characteristics similar to BC Hydro (e.g., winter peaking, except Idaho Power which is dual peaking; and hydroelectric based), including Manitoba Hydro, Hydro Quebec and Newfoundland Power, all of which have generation facilities located far from 0 00 RDA Decision, supra note, page. 0 BC Hydro retained SAIC Energy, Environment & Infrastructure in October 0 (SAIC); SAIC became Leidos Engineering in September 0; and the two primary Leidos Engineering consultants became Cuthbert Consulting, Inc. and NewGen Strategies and Solutions, LLC after the COS Methodology Review discussed in section. of the Application was finalized in December 0. Page -

116 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology load. In response to stakeholder feedback at Workshop (refer to Attachment to the Workshop Consideration Memo found at Appendix C-A), BC Hydro augmented the list of utilities reviewed by the COS Consultants; for example, BC Hydro looked at Alberta Electric System Operator, and other utilities which completed fairly recent COS such as FortisBC, Nova Scotia Power, New Brunswick Power and SaskPower.... Residential and General Service Rates On March, 0 BC Hydro circulated for stakeholder comment its list of jurisdictions to be examined for purposes of BC Hydro s Residential rates: 0 For Canada, the goal is geographic diversity while recognizing that BC Hydro is a vertically integrated monopoly. BC Hydro proposed surveying public utilities in all provinces except Ontario and Alberta (different market structures 0 ) and Prince Edward Island (size); For the U.S., BC Hydro used the Rates Comparison Regulation 0 enacted under the CEA, the fact that BC Hydro is part of the Western Electricity Coordinating Council (WECC), 0 and size as inputs with the result that BC Hydro proposed an assessment of the relevant residential rates of several public utilities in Washington State, Oregon and California as well as Idaho, Colorado and New Mexico. 0 In the mid-0s, Alberta deregulated generation, mandated open access for regulated transmission and distribution and introduced a real-time electricity spot market. Alberta has a competitive wholesale and retail electricity market. In, Ontario unbundled transmission, generation and dispatch, and in 00 Ontario introduced competitive wholesale and retail markets. Today, Ontario operates under a hybrid structure where there is wholesale and retail competition, but a large amount of generation remains regulated or subject to long-term government-backed contracts. The remaining provinces have government- or investor-owned vertically integrated public utility structures which offer bundled services at regulated rates. 0 B.C. Reg. /0; copy available at Section of this Regulation provides that an annual report to the B.C. Minister of Energy and Mines concerning average prices for BC Hydro s residential, commercial and industrial customers in comparison to other North American public utilities. 0 The Western Interconnection is the geographic area within which WECC promotes reliability, and is composed of two Canadian provinces, B.C. and Alberta; parts of western U.S. states (California, Nevada, Arizona, Utah, Idaho, Oregon, Washington state, Wyoming, most of Montana, Colorado and New Mexico, and a part of South Dakota, Nebraska and Texas); and the northern portion of Baja California, Mexico. The WECC is the body that sets electricity system operating performance and reliability standards for members in Western Canada and the Western U.S. Page -

117 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology The selected public utilities together with the number of customers they serve are listed at slides to of the Workshop A slide deck presentation found at Appendix C-B). BC Hydro asked if stakeholders agreed with the proposed residential rate jurisdictional selection, and if stakeholders wanted a survey of low income rates including statutory underpinnings. No stakeholder disagreed with the proposed residential rate jurisdictional selection: 0 Commission staff recommended that BC Hydro also reference Ontario s Regulated Price Plan, 0 which BC Hydro has done; refer to section. of the Workshop a/b consideration memo at Appendix C-B. The jurisdictional survey showed that with the exception of Yukon which has a three step rate for residential customers and Ontario which has mandated default TOU rates for the Regulated Price Plan, all surveyed Canadian electric utilities have either a two step inclining block rate or flat energy rate; and Several stakeholders asked BC Hydro to conduct a survey of low income rates together with a description of the relevant legislation, which BC Hydro completed and shared with BCOAPO for input. Refer to section.. of the Workshop a/b consideration memo and sections. and.. of the Application. A copy of the low income rate jurisdictional review is found at Appendix C-D. 0 At Workshop a/b, BC Hydro proposed the same jurisdictions for purposes of the SGS, MGS and LGS default rates and General Service rate options. No stakeholder disagreed with BC Hydro s proposal. The jurisdictional review of General Service rates revealed that with one exception (Ontario has inclining block rates but is phasing them out), all Canadian electric utilities surveyed have either a flat energy rate or declining energy rate for their General Service customers. BC Hydro is the 0 The vast majority of Ontario electric utility residential and commercial customers pay TOU rates under the Regulated Price Plan developed by the Ontario Energy Board in 00. Fewer than one in ten residential and commercial customers get their power from an electricity retailer; these customers sign a contract and pay a fixed rate that is separate from TOU pricing. Page -

118 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 only electric utility in North America with baseline rates for General Service customers.... Transmission Service Rates As described above in section..., the essential elements of RS, the default Transmission Service rate, are legislated pursuant to subsection () of Direction No.. Accordingly BC Hydro did not undertake a jurisdictional assessment for purposes of informing its proposal with respect to those elements of RS over which the Commission has jurisdiction (the pricing principles for F0-F0 and the definition of revenue neutrality; refer to section..). BC Hydro did undertake jurisdictional assessment to assist with developing Transmission Service rate options. BC Hydro reviewed Canadian jurisdictions with market structures similar to BC Hydro (vertically integrated monopolies) and set out the results in section of its Workshop consideration memo (found at Appendix C-A of the Application). This jurisdictional review found that most surveyed Canadian electric utilities offer their industrial customers interruptible rates and/or surplus rates (pursuant to which surplus energy is supplied only if it can be provided with available resources over and above the requirement of other firm commitments), but not RTP or TOU rates. This is consistent with BC Hydro s existing Transmission Service rate options and the freshet rate pilot. Refer to section. of the Application... Rate Modelling The quantitative outcomes with respect to Residential and General Service rates presented at Workshops, a/b, a/b, a/b and, and shown in this Application, come from a suite of simulation models falling into two categories: rate estimation; and assessment of customer impacts. Page -

119 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0 BC Hydro creates these models using a combination of software packages. A multi-departmental modelling team consisting of expert analysts, economists and accountants are involved in this process, and they evaluate each design by combining the quantitative outcomes with qualitative assessments. In estimating rates, BC Hydro develops quantitative models focused on implementing the key features of each rate design alternative, such as the pricing principles and bill impact constraints, while ensuring revenue neutrality relative to the particular status quo rate structure. In assessing customer impact, BC Hydro develops quantitative models that simulate a rate change from the status quo design at year 0 to an alternative design in year one on a representative sample of accounts under each rate class. The bill differences are estimated by assuming no changes in annual energy consumption. For the Residential sector, BC Hydro uses a representative sample of 0,000 to illustrate the overall population impact. This is followed by using the representative sample from the REUS to assess impacts by customer segments, such as low income, electrical heating and housing types. For the commercial sector (LGS/MGS), BC Hydro uses a cleaned sample created from the latest available billing data to perform impact analysis on both the general population and by customer type. BC Hydro has also engaged stakeholders in workshops, focus groups and interviews to assess customer response to each rate design alternative, such as ease of understanding and perceived fairness. Once the quantitative and qualitative outcomes are available, BC Hydro interprets them together and provides a performance evaluation of each rate design under the Bonbright criteria for presentation in the Application. The Residential, MGS and LGS rate modelling assumptions were described at the workshops referenced above, and are found at Appendix H-A. Page -

120 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0.. Use of External Experts In addition to undertaking a comprehensive internal analysis of its existing rates, BC Hydro retained outside expertise to assist in developing rate designs appropriate for the future. In Table - above it is noted that BC Hydro retained the COS Consultants to evaluate BC Hydro s COS methodology. The COS Consultants made a number of recommended changes contained in the December 0, 0 Final Report: Cost of Service Methodology Review (COS Methodology Review) (discussed in section. of the Application; copy found at Appendix C-A). A copy of the CV for Richard Cuthbert is found at Appendix D-A. Richard Cuthbert has over years of experience with advising electric and water utilities in the areas of rates, COS analysis, cost of capital studies and various other financial and economic analyses. BC Hydro retained E to assist with review of: 0 The following classification aspects of BC Hydro s existing seven rate class: the LGS and MGS rate classes, and in particular whether the existing LGS and MGS rate classes should be merged into a single rare class and/or whether the existing LGS rate class should be divided (referred to as segmented ) so that larger LGS accounts would form a new XLGS rate class as described in section... of the Application; and The existing default Residential (RIB rate), SGS, MGS and LGS rates, and alternatives to these default rates, as described in Chapters and of the Application. This work included assisting BC Hydro with its Residential and General Service jurisdictional assessments described in section.. above. A copy of the CV for Dr. Ren Orans is found at Appendix D-B of the Application. Dr. Orans has over years of experience in the electric utility business, having worked extensively in utility rate design and ratemaking, transmission pricing and planning, and integrated resource planning. Page -

121 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology. Scoping At Workshop, BC Hydro identified two general categories of topics BC Hydro believes are out of scope for purposes of developing the 0 RDA: 0 Matters recently reviewed by the Commission. This is discussed further below; and Rate designs which are contrary to or the subject of B.C. Government policy or enactment. A related out-of-scope category consisting of matters that are the subject of Subsection () of Direction No., namely the RS Tier /Tier 0/0 split and the exemption of New Westminster and UBC from RS and Transmission Service stepped rates. Refer to section... above. 0 BC Hydro explained that the term out-of-scope applied to development of BC Hydro s 0 RDA, but not necessarily to the subsequent Commission review of the 0 RDA. BC Hydro recognizes that the Commission has broad discretion with respect to the setting of the 0 RDA review scope. BC Hydro indicated the following Commission decisions as falling into this category:. The May, 0 RS 0 Decision concerning BC Hydro s application to replace the PPA between BC Hydro and FortisBC under RS 0 with a new PPA;. The Commission s April, 0 decision concerning BC Hydro s application for approval of charges related to the Meter Choices Program; 0 0 In the Matter of British Columbia Hydro and Power Authority: Application for Approval of Charges Related to the Meter Choices Program, Decision, April, 0 (Meter Choices Program Decision); copy available at _BCH%0Meter%0Choices_ Decision_G--.pdf; May, 0 errata at _ERRATA_BCH-Meter-Choice s-program-decision.pdf. Page -

122 Chapter - Stakeholder Engagement and Rate Design Evaluation Methodology 0 0. The July, 0 and July, 0 RS Commission decisions concerning BC Hydro s applications for changes RS (Net Metering Service); and. The Commission s various CBL-related decisions and the recent Contracted Generator Baseline proceedings, given the fact that CBLs had recently been reviewed by the Commission and has been the subject of five of Commission decisions (refer to section... above). In addition, the Commission s June, 0 decision approving BC Hydro s application for shore power rates (RS 0, RS and TS ) is out of scope for the 0 RDA given how recent the Commission review was. This issue was addressed in section. of the Workshop 0 consideration memo at Appendix C-B. Stakeholders generally supported this category. BCOAPO suggested that RS 0 should be in scope for the COS study. In section of the Workshop consideration memo (copy at Appendix C-A), BC Hydro agreed that while RS 0 is out of scope for rate design purposes because of the recent Commission review, it would be included in COS. Refer also to section. of the Application. BCSEA stated that CBL determinations could impact further development of RS and therefore should be in scope. In section of the Workshop consideration memo, BC Hydro responded that it did not see value in revisiting TS given the Commission s numerous reviews of CBLs (refer to section... above), and noted the majority of participants commenting on this topic agreed Transmission Service-related CBLs should be out of scope. BC Hydro committed to providing CBL description as context for its examination of Transmission Service rates; this is done in section. of the Application. Commission Order No. G-0- and accompanying Reasons for Decision ( G-0-_BCH_RS-Net-Metering_D ecision.pdf); and Commission Order No. G-- ( ents.pdf). Commission Order No. G-- and Reasons for Decision; _BCH-Shore-Power-Decision_ G--.pdf. Page -

123 Chapter Cost of Service

124 Chapter - Cost of Service Table of Contents. Introduction and Structure of Application F0 Cost of Service Study F0 Cost of Service Study Proposal Structure of Chapter Fiscal 0 Cost of Service Study Three Step Process Base Year (F0) Categories of Cost of Service: Embedded and Marginal Fiscal 0 Cost of Service Study Development Conclusions from COS Consultants Methodology Review F0 Cost of Service Study and 00 Rate Design Application Decision Directions Existing Rate Classes Load Data Functionalization Generation Transmission Distribution Customer Care Functionalization Procedure and the Revenue Requirement Information Technology Transmission and Distribution Costs Demand Side Management Regulatory Accounts Classification Generation: Heritage Hydro Generation: Heritage Thermal Generation: Independent Power Producers Generation: Demand Side Management Powerex Net Income Transmission Distribution Smart Meter Infrastructure Customer Care Allocation Direct Assignment Generation Energy... - Page -i

125 Chapter - Cost of Service... Distribution losses Transmission losses Generation Demand and Transmission Distribution Customer Care Summary of F0 Cost of Study Methodology Changes, Rate Class Revenue to Cost Ratios and Rate Class Cost Classification... - List of Figures Figure - Cost Allocation Methodology... - List of Tables Table - Summary of 00 RDA-Related COS Methodology Changes Table - IT Functionalization... - Table - Functionalization of Rate Smoothing Account... - Table - Functionalization of Interest on Regulatory and Deferral Accounts... - Table - Summary of F0 COS Study Methodology Changes... - Table - R/C Ratios... - Table - F0 Cost of Service Study Cost Classification... - Page -ii

126 Chapter - Cost of Service. Introduction and Structure of Application The three sequential steps employed in the development of BC Hydro s rates are: () revenue requirement determination; () COS development; and () rate design studies. This Chapter presents BC Hydro s F0 COS study. The F0 COS study model is found at Appendix E... F0 Cost of Service Study One of the main purposes of a COS study is to appropriately allocate costs to BC Hydro s rate classes: 0 0 Costs by rate class can be compared with revenue by rate class to calculate R/C ratios for individual rate classes. The R/C ratios reflect the extent to which BC Hydro is collecting revenue relative to the costs allocated to each rate class. For example, a R/C ratio less than one indicates that the revenue collected under existing rates is not sufficient to recover the costs assigned to the rate class under the approved COS methodology. As noted in section... of the Application, the LGIC recently issued the Rate Rebalancing Amendment which prevents the Commission from setting rates for F0 to F0 for the purpose of changing R/C ratio for a class of customers. However, determining R/C ratios is not the sole purpose of the COS study; After costs are assigned to rate classes, the F0 COS study is used as a foundation for the calculation of rates. For example, rate design is informed by a comparison of energy, demand and customer-related costs, as identified in the F0 COS study, and revenue from energy, demand and basic charges. The energy, demand and customer cost allocation to each of the seven existing rate classes is set out in Table - at the end of this Chapter... F0 Cost of Service Study Proposal At Workshop, BC Hydro discussed the Rate Rebalancing Amendment and BC Hydro s proposal to review COS methodologies again and file a F0 COS Page -

127 Chapter - Cost of Service study with the Commission for review in F0. The F0 COS would be the subject of stakeholder engagement prior to filing and would include a rate rebalancing proposal if appropriate. BC Hydro would continue to submit Fully Allocated COS results with the Commission every year pursuant to 00 RDA Direction. The Fully Allocated COS would reflect any Commission findings concerning the F0 COS... Structure of Chapter The remainder of this Chapter is organized as follows: 0 0 In the COS study, cost causation is based on each customer class s usage of the BC Hydro system as forecast for F0. Section. provides an overview of the three steps BC Hydro followed in developing its COS study, namely functionalization, classification and allocation; The F0 revenue requirement, the most current approved revenue requirement available, is described in section.. A COS study begins with the utility s revenue requirement. The revenue requirement includes cost of energy, operations, maintenance and administration (O&M) expenses, taxes, depreciation and amortization, financing charges and Return on Equity (RoE); The COS study allocates the revenue requirement among the existing seven rate classes. (Chapter provides the analysis BC Hydro used to determine that these rate classes remain appropriate for RDA Module purposes, with the exception noted in section.. of the Application concerning BC Hydro-owned Street Lighting). A fundamental issue is whether BC Hydro s revenue requirement should be allocated using the traditional, widely-followed embedded COS approach or a marginal COS approach, which Refer to slide 0 of the Workshop presentation deck found at Appendix C-B to the Application. Commission Order No. G--; copy available at G--_BCH-F-- RevenueRequirements.pdf. Page -

128 Chapter - Cost of Service 0 0 examines the future costs of supplying an additional kwh, kw or customer. BC Hydro rejects marginal COS for revenue requirement allocation purposes for the reasons set out in section., including widespread stakeholder support for the embedded COS approach. Consistent with the 00 RDA Decision BC Hydro has prepared its COS study on an embedded-cost basis for the 0 RDA; Section. canvasses the guiding principles used to develop the F0 COS study, including use of 00 RDA Decision COS-related Directions -0 and as a starting point; adoption of recommendations from the COS Consultants contained in the COS Methodology Review (copy found at Appendix C-A); BC Hydro s jurisdictional assessment; and 0 RDA stakeholder engagement feedback. Section. also provides a summary of F0 COS methodology changes as compared to the 00 RDA Decision. Section. concludes with a description of BC Hydro s existing seven rate classes and the load profile data used for classification of demand-related costs in the F0 COS study; Sections.,. and. address respectively functionalization, classification and allocation of costs with a focus on the five COS study methodology items which did not have a fair degree of stakeholder consensus in the 0 RDA stakeholder engagement process (BC Hydro regulatory account functionalization (section..); Heritage hydro classification (section..); SMI classification (section..); and Distribution classification and allocation (sections.. and..)); and Section. concludes with the resulting customer class R/C ratios for F0 and the F0 classification of energy, demand and customer costs for each of the seven existing rate classes. As described in section.. of the Application, BC Hydro retained SAIC in October 0; SAIC became Leidos Engineering in September 0; and the two primary Leidos Engineering consultants became Cuthbert Consulting, Inc. and NewGen Strategies and Solutions, LLC after the COS Methodology Review was finalized in December 0. A copy of the CV for Richard Cuthbert is found at Appendix D-A. Page -

129 Chapter - Cost of Service. Fiscal 0 Cost of Service Study Three Step Process BC Hydro s F0 COS study takes the F0 revenue requirement and seeks to transparently allocate those costs to the seven rate classes. This analysis provides a determination of the level of cost responsibility of each rate class and the revenue adjustments required to meet the cost of service. Where possible, costs are assigned directly to rate classes. Costs not directly assigned are allocated to rate classes in the widely-adopted three-step process summarized in Figure -. Figure - Cost Allocation Methodology Total Cost Step : Functionalization Generation Cost Transmission Cost Distribution Cost Customer Care Cost Step : Classification Demand Energy Demand Customer Demand Customer Step : Allocation Allocation of Costs to Rate Classes 0 Costs are functionalized into the following operating function categories: Generation, Transmission, Distribution and Customer Care. This is described in section.; Costs by function are classified into three categories: energy (variable costs that vary with kwh provided), demand (fixed costs that vary with kw demand) or customer-related (costs that are sensitive to connecting customers to BC Hydro s network irrespective of the customer s load, such as metering services and billing costs). Classification is addressed in section.; The energy, demand and customer categories are allocated to the seven rate classes on the basis of their respective energy use, demands or customer number (or other established allocator base). Refer to section.. Page -

130 Chapter - Cost of Service 0 0. Base Year (F0) In the case of BC Hydro, the subject of the F0 COS study is BC Hydro s F0 RRA. BC Hydro has an approved revenue requirement of $,. million for F0. Historically, BC Hydro prepared COS studies using actual revenues, costs, energy sales and customer load profiles from a recently completed fiscal year. If BC Hydro followed past practice, the COS study would have been based on F0 actuals because F0 information would not be available in time for the 0 RDA filing. There would have been a three-year misalignment between BC Hydro s rates and a COS study based on actual costs (F0). To avoid this disconnect, BC Hydro prepared the F0 COS study on a forecast basis using F0 forecast information from the approved F0 RRA. Some historical information, such as load profiles by rate class, is used in the F0 COS study and this is discussed in section... Further information concerning BC Hydro s F0 RRA as used in the F0 COS study is found in sections..,. and... Categories of Cost of Service: Embedded and Marginal One consideration in COS analysis is to determine if there are costs which can be directly assigned to a particular rate class. Direct assignment of costs is typically limited to costs clearly caused by only a single rate class. An example is BC Hydro-owned Street Lighting. However, most utility investments serve many rate classes which use utility facilities differently, so direct assignment of costs is not possible. Most electric utilities use an embedded COS that breaks down the complexities of non-direct assignment costs by function and classification of cost causation. An embedded COS study begins with development of the utility s revenue requirement, based on historic or forecast accounting costs and usage patterns. Another Page -

131 Chapter - Cost of Service 0 0 approach for assigning utility costs is through a marginal COS, which assigns costs based on the additional cost incurred to provide an increment of a good or service (i.e., kwh, kw and customer). Both embedded COS and marginal COS require a large number of assumptions. Marginal COS requires generally-accepted methodologies for defining and measuring LRMCs for energy, generation capacity resources, transmission, distribution and customer-related service. Marginal COS results in a revenue requirement total that is different from the utility s approved revenue requirement as forecast marginal costs are almost always different than embedded costs. To deal with this discrepancy, the resulting marginal cost-based revenue requirement levels by rate class are adjusted either up or down to ensure that rates overall will recover no more than what the approved revenue requirement dictates. This adjustment process would cause dilution and variation from any pricing signals that might reflect true marginal costs and it would introduce greater subjectivity as there are multiple ways to make the adjustment. With the exception of one participant (COPE ), stakeholders commenting at 0 RDA Workshops, and/or and related written processes agreed with BC Hydro s preference to prepare an embedded COS study. In the 00 RDA Decision, the Commission concluded there had been no widespread adoption of marginal COS methods, and through 00 RDA Directions through 0 and instructed BC Hydro to continue using the embedded COS approach. The Commission also accepted the embedded COS approach as part of its decision concerning FortisBC s 00 Rate Design/COS Application. There is ample basis to continue to design rate structures with marginal cost pricing while allocating BC Hydro s revenue requirement on an embedded cost basis. All As part of its Workshop written feedback, COPE advised that given the Rate Rebalancing Amendment, COPE no longer plans to litigate marginal COS versus embedded COS approach as part of RDA Module. However, COPE states that in its view, marginal COS must be addressed as part of the F0 COS. A copy of COPE s Workshop written comments is found at Appendix C-B. 00 RDA Decision, pages 0 to 0. In the Matter of An Application by FortisBC Inc. for Approval of a 00 Rate Design and Cost of Service Analysis, Decision, October, 00 (00 FBC RDA Decision), section.0; copy available at FortisBC-00-RDA_WEB.pdf. Page -

132 Chapter - Cost of Service 0 0 Canadian and most U.S. Pacific Northwest utilities use embedded COS approaches. No jurisdiction has adopted marginal COS for revenue requirement allocation since the 00 RDA Decision. At least one jurisdiction - Illinois Commerce Commission - reverted back to the traditional method of embedded COS. Refer to Part of the Workshop consideration memo at Appendix C-A and Attachment of the Workshop consideration memo at Appendix C-B for a detailed discussion of why BC Hydro rejects marginal COS for revenue requirement allocation purposes.. Fiscal 0 Cost of Service Study Development The COS Consultants reviewed BC Hydro s COS analyses, models, spreadsheets used in ratemaking processes, and also undertook discussions with relevant BC Hydro business units whose costs impact the COS study. The focus was key issues from the 00 RDA Decision, such as Heritage hydro and IPP classification, and Distribution sub-functionalization, classification and allocation. The COS Consultants also reviewed COS methodologies used by nine electric utilities in ten jurisdictions: Avista Corporation (Avista; filings with the Idaho Public Utilities Commission and Washington Utilities and Transportation Commission); Bonneville Power Administration (BPA); Hydro-Québec Distribution; Idaho Power Company (Idaho Power, filing with the Idaho Public Utilities Commission); Manitoba Hydro; Newfoundland Power Inc. (Newfoundland Power); Portland General Electric Company; Puget Sound Energy; and Seattle City Light. 0 BC Hydro undertook additional jurisdictional review to respond to feedback at Workshop that BC Hydro should examine Manitoba Hydro in greater detail as a similar electric utility and review additional electric utilities for Distribution COS Compare Illinois Commerce Commission in to 0 (Re Commonwealth Edison Co., P.U.R. th 0 (0) and Illinois Commerce Commission decision in 00/00 rejecting Commonwealth Edison Co. s proposal to use a marginal COS approach; Order No. 0-0, beginning at page. 0 The criteria for selection of jurisdictions to be reviewed was: primarily hydro generation based; preference for winter peaking jurisdictions; preference for embedded COS methodology but not excluding utilities that use marginal COS; preference for providing vertically integrated services; and relatively large sized utilities in terms of revenue (greater than $00 million revenues) and customers served (greater than 00,000 customers). Page -

133 Chapter - Cost of Service 0 0 information. The following reports and other materials comprised this additional jurisdictional assessment:. Concentric Energy Advisors, Inc. Class Cost Allocation Study Prepared for New Brunswick Power Corporation dated September 0;. Elenchus survey conducted on behalf of SaskPower in January 0 entitled Review of Cost Allocation and Rate Design Methodologies: A Report Prepared by Elenchus Research Associated Inc.;. Christensen survey conducted on behalf of Manitoba Hydro in June 0 entitled Review of Cost-of-Service Methods of Manitoba Hydro; and. FortisBC s 00 Rate Design/COS Application... Conclusions from COS Consultants Methodology Review The COS Methodology Review concludes that BC Hydro s COS methodology is generally consistent with standard embedded COS methodologies. The one exception is classification of Customer Care costs as per cent demand and per cent customer as mandated by 00 RDA Direction ; all electric utilities surveyed classify Customer Care costs as 00 per cent customer. The COS Methodology Review makes recommendations. BC Hydro largely concurs with these recommendations. Copies of the COS Methodology Review and BC Hydro s response to the recommendations contained in the Workshop Discussion Guide are found at Appendix C-A to the Application. The COS methodology also benefited from (Concentric Energy Advisors Report). Refer to Nova Scotia Power Inc. s 0 Cost of Service Study - Application (Exhibit N-, Appendix H) which can be found on the Nova Scotia Utility and Review Board website ( under Case M0. Copy available at B- _FortisBC%000%0Rate%0Design%0Application.pdf. Page -

134 Chapter - Cost of Service stakeholder input received as part of Workshop and Workshop as noted throughout this Chapter... F0 Cost of Service Study and 00 Rate Design Application Decision Directions Based on the COS Methodology Review, its own jurisdictional assessment and the 0 RDA stakeholder engagement process, BC Hydro proposes methodology changes to the 00 RDA Decision as summarized in Table -. Page -

135 Chapter - Cost of Service Table - Summary of 00 RDA-Related COS Methodology Changes 00 RDA Direction COS Methodology Change Proposed in 0 RDA Direction Functionalize DSM 0 per cent to Generation and 0 per cent to Transmission Direction Classify Heritage hydroelectric Generation per cent energy/ per cent demand on the basis that future Resource Smart additions at Revelstoke and Mica Generating Stations are predominantly capacity-related Direction Classify IPP purchases 00 per cent energy. BC Hydro is directed to prepare a study for its next RDA that examines and quantifies the capacity benefits associated with IPP EPAs Direction Classify Distribution costs per cent demand/ per cent customer. BC Hydro is directed to conduct a minimum system and zero intercept analysis for inclusion in its next RDA Direction Classify Customer Care costs per cent demand/ per cent customer Functionalize DSM to 0 per cent Generation, per cent Transmission and per cent Distribution on the basis that while DSM initiatives are primarily undertaken to defer Generation resources, they have some Transmission and Distribution deferral benefits. See section... Use BC Hydro integrated system Load Factor calculation based on loads almost entirely served by Heritage hydroelectric supply (the impact of IPPs serving load is removed) resulting in a per cent energy/ per cent demand split. See section... Use an approach where the fraction of IPP costs allocated to demand equals the ratio of IPP capacity benefits from the IPP EPA portfolio over IPP costs, resulting in a per cent energy/ per cent demand split. See section... Sub-functionalize the Distribution system: () classify substations and the primary system as 0 per cent demand using Non-Coincident Peak (NCP) allocator; () direct assign transformers, with 0 per cent demand/0 per cent customer classification for rate design purposes; () classify the secondary system and services as 0 per cent demand/0 per cent customer and use appropriate allocators; and () classify meters as 00 per cent customer on a weighted customer basis. BC Hydro conducted a minimum (system) study and zero intercept analysis, but has not used the results given the shortcomings outlined in section... Classify Customer Care costs 00 per cent customer as such costs do not vary with demand levels (or energy usage) but only in proportion to the number of customers on the BC Hydro system. See section... Load Factor is the ratio of the average demand supplied during a given period to the peak demand occurring during the same period. Refer to Glossary and Abbreviations at Appendix B of the Application. NCP demand is a customer s or rate class s maximum demand, regardless of when the BC Hydro system peak occurs. Page -0

136 Chapter - Cost of Service 0 There is one methodology change that does not relate to the 00 RDA COS-related directions referenced above; it concerns IPP capital lease costs referenced in section.. and summarized here. IPP capital lease costs were spread across multiple business groups in the previous COS study methodology. For F0 COS purposes, they are considered entirely Generation-related. Refer to Attachment to the Workshop consideration memo at Appendix C-B for additional detail. Finally, a number of COS R/C ratios changed (irrespective of any proposed changes to the F0 COS study methodology) despite using the same (00 RDA Decision) methodology as the F0 Fully Allocated COS. This occurs for a variety of reasons including: Changes in the relative proportions of Generation, Transmission, Distribution and Customer Care costs; The energy allocator has been updated using forecast F0 sales by rate class; Demand allocators ( Coincident Peak (CP) and NCP) have been updated; and Forecast revenues by rate class have changed as they are based on F0 sales rather than actual F0 energy consumption and revenues. 0 The remainder of this section outlines the seven existing rate classes, and describes the load data concerning energy and capacity use for each of the rate classes... Existing Rate Classes Customers of electric utilities differ in their requirements for electricity. Such differences are reflected in both the timing and magnitude of requirements. Electric The F0 FACOS was submitted to the Commission on April 0, 0. A copy is found at the BC Hydro 0 RDA website; portal/documents/corporate/regulatory-planning-documents/regulatory-matters/0-0-0-bch-f0- facos.pdf. CP demand is a customer s or customer class s demand at the time of BC Hydro s system peak demand. Page -

137 Chapter - Cost of Service utility customers are segmented into rate classes for technical, administrative and/or regulatory reasons. Segmentation of customers is typically based on criteria such as maximum kw demand; voltage level of service; and/or embedded COS. As described in section. of the Application, BC Hydro serves seven rate classes: 0 Residential; Three General Service categories which are a heterogeneous mix of commercial and institutional customers, segmented based on monthly peak demand SGS, MGS and LGS. The segmentation of the General Service category was part of BC Hydro s 00 LGS Application and is described in more detail in section. of the Application; Transmission voltage service; Irrigation; and Street Lighting. 0 This Chapter describes how costs are allocated to the existing seven rate classes. The COS analysis is one input into BC Hydro s analysis in Chapter of whether the existing seven rate classes remain appropriate... Load Data With the emergence of SMI, load research work at BC Hydro has changed. Prior to 0, BC Hydro collected interval data from a sample of approximately,00 customer locations dispersed throughout its service area. The collection process took several months to complete and was labor intensive to collect. Because the sample was so small, the rate class profiles created were general, sample redesign was not financially feasible and there was a risk of sample bias. BC Hydro estimates this load research data barely met minimum standards of 0 per cent confidence of Refer to Appendix J of Exhibit B- in the 00 LGS Application proceeding; 00_0_%0APPL_0LGS.pdf. Page -

138 Chapter - Cost of Service 0 0 repeatability (confidence level) with 0 per cent accuracy. As a result of these numerous drawbacks, BC Hydro could not create accurate load profiles for smaller customer segments such as Residential E-Plus or Irrigation customers in past COS studies. As described in section... of the Application, since the implementation of SMI in F0 SMI daily register reads are available for almost all BC Hydro customers. Ratio expansions 0 can be done on a daily basis rather than an annual or monthly basis as they were in the past. Also, BC Hydro has a statistical sample of about,000 customers with hourly load information from which it can conduct more detailed load research. With the capability to create almost on-demand detailed customer load profiles, regulatory analysis, rate design and peak load forecasting have been improved. BC Hydro estimates that the new hourly sample of,000 would yield within per cent accuracy at per cent confidence level.. Functionalization Step in the embedded COS approach is functionalizing the revenue requirement. Two functionalization issues arose during the 0 RDA stakeholder engagement process relating to DSM (for which there was a fair degree of consensus) and BC Hydro s regulatory accounts; refer to sections.. and..... Generation The Generation function includes all costs associated with the production of energy, including Heritage resource and IPP energy. The Generation function also includes: Some transmission costs incurred to connect Heritage generation assets to the transmission grid (referred to as Generation Related Transmission Assets 0 Ratio Expansion (Combined Ratio Estimation) is a modeling technique involving stratified random sampling that is widely used in Load Research. Its principle use is to expand sample data to system parameters and to estimate the reliability of the results. It is a statistical modeling technique to obtain a population demand value (kw) by utilizing a known population of billing values (kwh) with a representative sample of metered kw and kwh measurements. Class demand estimates for rates classes and other populations with known total energy use are adjusted by the ratio of demand to energy use for the stratified sample. Page -

139 Chapter - Cost of Service (GRTA)), BC Hydro determined that actual GRTA costs ranged between $. million and $. million in the F0 to F0 period. As a result, BC Hydro believes the existing $. million estimate continues to be appropriate; and As noted in section.. above, IPP capital lease costs. 0 0 The subsidiary net income, which is derived primarily from Powerex Corp. (Powerex), is assigned to the Generation function on the basis that the income is associated with energy sales... Transmission The Transmission function includes all costs relating to the delivery of electricity from the generation interface to the distribution network load centres, including the costs of operating and maintaining transmission lines, poles, towers, substations, etc. Transmission is generally those lines measured at kv and above... Distribution The Distribution function provides the service of receiving bulk electricity and distributing it to customers taking service from the distribution system. Primary distribution voltage levels are normally from kv to kv. The distribution system includes Substation Distribution Assets, step down transformation, secondary cables for customers who accept secondary service and service connections. The costs of metering electricity from the distribution system are also included as part of the Distribution function. BC Hydro has sub-functionalized the distribution system into: substations; primary system; transformers; secondary/services; and meters based on the advice of the COS Consultants and in response to the Commission s comment in the 00 RDA that BC Hydro should update its study of its distribution system. Page -

140 Chapter - Cost of Service 0.. Customer Care The Customer Care function includes services related to revenue collection and customer account and relationship management, as well as planning and sustainment of the Information Technology (IT) infrastructure required to deliver these services. Revenue collection activities include meter reading, bill generation and delivery, billing exception identification and resolution, payment processing, collections and investigation of electricity theft. Customer account and relationship management are provided through mass market contact channels (call centre, internet portal) and dedicated account representatives for BC Hydro s largest customers, as well as resolution of claims and complaints... Functionalization Procedure and the Revenue Requirement In most cases the F0 COS utilizes the functionalization provided by the F0 RRA. The RRA disaggregates BC Hydro s costs into Cost of Energy, O&M, taxes, depreciation, financing costs and RoE, and then apportions the costs between the following functional areas: Generation, Transmission, Distribution (Transmission and Distribution are referred to collectively as T&D) and Customer Care: 0 Cost of Energy is functionalized entirely to Generation in the F0 COS study; O&M costs are functionalized using Schedules.0 to. of the F0-F0 RRA Financial model, which map business groups to different functional areas. When a particular business group provides services to multiple functional areas, the RRA maps it according to the functional area that best captures a majority of the costs incurred. For example, the BC Hydro Environmental Risk Management (ERM) business group is functionalized entirely to the Generation function, even though about 0 to per cent of ERM s O&M costs are likely T&D related. Similarly, BC Hydro Aboriginal See Appendix C of BC Hydro s F0-F0 RRA at: RevenueRequirementsApplication.pdf. Page -

141 Chapter - Cost of Service Relation s operating costs are functionalized entirely to T&D even though some of the operating cost is likely Generation-related; The remaining cost categories (taxes, depreciation, financing cost and RoE) are functionalized directly using the revenue requirement. Taxes are directly functionalized on schedule.0 (Lines 0 to ) of the RRA financial model. Depreciation, financing cost and RoE are all functionalized using BC Hydro s asset records and rate base on schedules.0 (Lines 0 to ),.0 (Lines to ), and.0 (Lines to ) of the RRA model. 0 0 For COS purposes, BC Hydro considered using bottom up methods to estimate the proportion of work that spans multiple functional areas, but observed that the approach would be administratively complex without a corresponding gain in accuracy. In most cases BC Hydro chose to functionalize business group costs entirely to the predominant functional area for the following reasons:. With the exception of IT-related costs, the total dollars from business groups that span multiple functional areas are relatively small ($0 million in F0 which represents less than per cent of the F0 revenue requirement);. The difference between splitting the costs among multiple functional areas versus functionalizing to a primary group has a negligible impact on the R/C ratios in the F0 COS study. For example, shifting $ million from Generation to Distribution has at most a 0. per cent change, depending on the rate class. Together with point above, this suggests any gains in F0 COS study accuracy from this approach would be minimal;. There are offsetting effects as some of the groups functionalized to Generation include T&D-related work (i.e., ERM) while some groups functionalized to T&D (i.e., Aboriginal Relations) include Generation-related work; and Page -

142 Chapter - Cost of Service 0. Splitting the costs for some business groups may not be stable as the proportions of cost associated with different lines of business change year over year. Similar issues exist with IT related costs. These are discussed below in greater detail.... Information Technology In February 0 AMPC submitted comments on BC Hydro s draft F0 COS model and noted that IT costs are becoming a significant cost element before requesting that BC Hydro prepare a study that more accurately assigns IT costs to all significant users of IT services including and specifically identifying metering, billing, customer service and distribution operations and planning. Operating costs associated with IT are approximately $ million in the F0 COS study and these are currently treated like a corporate expense and functionalized to all business groups using a high level O&M allocator. In response to AMPC s request, BC Hydro examined operating IT costs to assess the feasibility of getting a more detailed bottom up functionalization. BC Hydro relied on professional judgement to estimate the functional split shown in Table -. Table - IT Functionalization $ million Generation (G), Transmission T), Distribution (D), Corporate (Co), Customer (Cu), and General (Ge) G (%) T (%) Bottom up functionalization 0 Bottom up functionalization based on COS functions Status Quo Functionalized by Corporate O&M D (%) Cu (%) Co (%) Ge (%) Generation percentage calculated by adding a pro-rata share of Corporate and General costs to the per cent share of cost functionalized as Generation in the bottom up method. Page -

143 Chapter - Cost of Service Costs were functionalized according to the main beneficiary of the services Generation, Transmission, Distribution, etc. Where possible, costs were functionalized directly. BC Hydro has the following concerns with this approach and believes treating IT costs as a corporate expense for F0 COS study purposes is most appropriate: 0 0 About per cent of the costs have been classified as General because the costs overlap across all functions. Approximately 0 per cent of General category costs (0 per cent of $0 million or $ million) relates to IT infrastructure, network operations, and enterprise applications that benefit all business groups; IT operating costs are largely related to the maintenance of existing IT-related assets that were previously capitalized and included in rate base. The accuracy of the accounting system s existing rate base functionalization with respect to IT-related costs is questionable and it would take significant effort to confirm accuracy; Functionalizing IT costs to a business group may not yield stable results. The functional split may change each year as business focus and priorities change; The bottom up analysis described above is high-level at best and relies on judgement to directly functionalize costs. BC Hydro believes the preparation and maintenance of this analysis would be administratively complex and time consuming; and BC Hydro estimated the impact of IT functionalization at a 0. per cent change in the Residential R/C ratio as part of the F0 draft COS study model circulated to stakeholders for a thirty day comment period on February, 0 (stakeholder comments relating to the model are found at Appendix C-C of the Application). IT costs have a smaller impact on F0 COS study results than Page -

144 Chapter - Cost of Service 0 0 other issues such as Heritage hydro and Distribution classifications discussed respectively in sections.. and... For these reasons BC Hydro believes that a more transparent approach is to treat IT costs the same way as other corporate costs.... Transmission and Distribution Costs As part of the RRA process, T&D operating costs are already split between Transmission and Distribution using a methodology that originated in BC Hydro s Wholesale Transmission Service proceeding and involves a detailed review of all operating costs within T&D. For example, Line on Schedule. of the RRA shows that. per cent of F0 T&D operating cost is functionalized as Transmission while the remaining. per cent is functionalized as Distribution; refer to the F0 COS model at Appendix E of the Application. BC Hydro relies on this information for F0 COS purposes... Demand Side Management At Workshop BC Hydro identified DSM as a functionalization issue, and proposed a departure from the Commission s 00 RDA Decision Direction functionalizing DSM-related costs as 0 per cent Generation and 0 per cent Transmission to functionalizing DSM-related costs as 0 per cent Generation, per cent Transmission and per cent Distribution. At the request of some stakeholders, BC Hydro explored directly assigning DSM costs to rate classes that receive DSM incentives or direct financial benefits from DSM measures. BC Hydro understands that Manitoba Hydro directly assigns DSM costs. BC Hydro examined the costs and benefits of different DSM initiatives (rate structures, codes and standards, and DSM programs) over the F00 to F0 period. As illustrated in section. of the Workshop consideration memo at Manitoba Hydro recovers approximately $0 million in DSM costs each year as compared to approximately $00 million recovered by BC Hydro. A multi-year period was selected to smooth out the year over year fluctuations in DSM expenditures. Page -

145 Chapter - Cost of Service 0 0 Appendix C-A, there is not a direct correlation between the benefits and costs of different DSM initiatives. Accordingly, BC Hydro did not pursue direct assignment of DSM costs for the F0 COS study. Refer to for section. of the Workshop consideration memo (at Appendix C-A) and section. of the Workshop consideration memo (at Appendix C-B) for further detail... Regulatory Accounts Regulatory accounts emerged as a functionalization issue as a result of stakeholder feedback at Workshops and. Deferral and regulatory account balances represent costs from prior years that have been approved to be capitalized and amortized for recovery over a future period. The amortized amounts in the current year s revenue requirement have been reviewed to ensure the recovery aligns with the functionalization and classification of the underlying asset. The functionalization for several regulatory account amounts was adjusted, each with a small impact to total costs assigned by function. The largest of these in F0 was a change in the functionalization of the Rate Smoothing regulatory account, an amount of $. million in the F0 RRA. This amount was previously assigned to each function proportionate with functionalized O&M. The COS Consultants recommended that this amount be functionalized proportionate to the functionalization of the total revenue requirement. The proportions for the two methods are shown in Table -. In addition to the Rate Smoothing and Interest on Regulatory and Deferral Accounts amounts, the functionalization of the First Nations and PCB Remediation regulatory accounts were also refined. Page -0

146 Chapter - Cost of Service Table - Functionalization of Rate Smoothing Account Rate Smoothing Account Functionalization Generation (%) Transmission (%) Distribution (%) Customer Care (%) Previous O&M Method..0.. F0 COS Total Revenue Requirement Method....0 The functionalization of the interest on regulatory and deferral accounts was also adjusted to align the interest amount with the functionalization of the underlying regulatory asset. Previously, the interest on these amounts was included with total financing charges for BC Hydro and functionalized by total rate base. In F0, the Interest on Regulatory and Deferral Accounts is $. million. Refer to Table -. Table - Functionalization of Interest on Regulatory and Deferral Accounts Previous Finance Charges Method F0 COS Regulatory & Deferral Accounts Method Generation (%) Transmission (%) Distribution (%) Customer Care (%) The classification of the interest on the deferral accounts was also updated to be consistent with that used for Cost of Energy. This amount was previously classified using the classification ratio applied to all of the Generation function. In F0, this change is applicable to an amount of $. million. More information on BC Hydro s treatment of regulatory accounts in the F0 COS study is found in section of the Discussion Guide to Workshop (at Appendix C-B) and in the F0 COS study Excel model (at Appendix E; Sheet.0 lists each regulatory account separately so stakeholders can understand how each is being functionalized). In past COS studies, regulatory accounts were not functionalized individually and only total additions and total recoveries, across all the accounts, were shown. As noted above in section..., a description of the draft Page -

147 Chapter - Cost of Service 0 0 F0 COS study model was circulated to stakeholders for a thirty day comment period on February, 0.. Classification Step of the embedded COS approach is classification: what causes the cost to be incurred? In embedded COS analyses, utilities divide costs according to causality into three components: () energy (variable costs that vary with the kwh); () demand (fixed costs that vary with kw demand); and () customer (costs directly related to the number of customers). Based on the jurisdictional assessments described in section. above, Generation costs are generally split between energy and demand; Transmission costs are generally classified as demand-related; Distribution costs are generally split between demand-related and customer-related components or directly assigned to a specific rate class; and customer costs are classified as 00 per cent customer-related. Cost classification assumptions that result in more costs being assigned to demand and less to energy tend to benefit higher load factor customers and result in more costs being assigned to low load factor customers. This outcome follows from the fact that high load factor customers use a higher proportion of energy (kwh) in relation to their capacity demands (kw), whereas low load factor customers generally require more capacity relative to their energy needs. Cost allocation methods that attribute more costs to the customer classification and less to demand and energy generally result in relatively lower total costs assigned to larger customers and higher total costs assigned to smaller customers. BC Hydro believes there is a fair degree of consensus through the 0 RDA stakeholder engagement process on the following classification issues (refer to section of Workshop consideration memo at Appendix C-B): IPP EPA classification; Transmission classification; and Page -

148 Chapter - Cost of Service Customer classification. 0 Accordingly, this section focuses on the three classification issues which do not have a fair degree of stakeholder consensus: Heritage hydro, Distribution and SMI. In addition, BC Hydro provides discussion on DSM classification as this topic was not canvassed extensively during stakeholder engagement... Generation: Heritage Hydro BC Hydro prefers a system load factor approach to classify Generation, resulting in a per cent energy/ per cent demand split. However, BC Hydro has brought forward two F0 COS study sensitivities as discussed below and does not oppose adoption of any of the three Generation classification options. Costs related to the Heritage hydro system exceed about $ billion and account for the largest share BC Hydro s F0 revenue requirement (about per cent). In the 00 RDA, BC Hydro proposed a 0 per cent energy/0 per cent demand Generation classification. 00 RDA Direction provided for a per cent energy/ per cent demand Generation classification on the basis that at the time, future Resource Smart additions were predominantly capacity-related. The COS Consultants recommended that BC Hydro consider either a system load factor or a plant capacity factor method to classify Heritage hydro costs: 0 Using a load factor method, the energy portion of Generation cost would be equal to the system load factor while the Generation demand portion would equal one minus the system load factor. BC Hydro would estimate the system load factor for F0 based on the most recent load forecast; and A plant capacity factor approach (i.e., ratio of average plant load to nameplate plant capacity) that sub-functionalizes hydro generating facilities in service and O&M costs by individual plant or groups of plants and then uses the 00 RDA Decision, page. Page -

149 Chapter - Cost of Service 0 0 corresponding plant capacity factors to classify hydro plant and O&M costs, excluding water costs. BC Hydro described the pros and cons of each approach in Table of the Workshop Discussion Guide (copy at Appendix C-A). After engaging with stakeholders at Workshop and Workshop, in the F0 COS study BC Hydro uses a system load factor approach to classify Generation, resulting in a per cent energy/ per cent demand split. The use of system load factor is based on the advice of the COS Consultants subsequent to Workshop and jurisdictional support (Avista, Newfoundland Power, Idaho Power and PacifiCorp). Refer to section of the Workshop Discussion Guide at Appendix C-B for a summary of the reasons for selecting a system load factor. However, as stated in section.. of the Workshop consideration memo, BC Hydro believes that both the load factor and capacity factor approaches have merit. As a result, and to respond to AMPC, Transmission Service customer and CEC concerns with the system load factor approach, BC Hydro brought forward two F0 COS study sensitivities:. Forty-five per cent energy/ per cent demand split resulting from a capacity factor approach (Sensitivity Number ); and. Fifty per cent energy/0 per cent demand split based on BC Hydro s historic classification of Heritage hydroelectric facilities (Sensitivity Number ). A 0 per cent energy/0 per cent demand split is a compromise approach that recognizes the limitations of and roughly represents an average of the system load factor and capacity factor approaches. The energy portion of Generation cost is equal to the system load factor while the Generation demand portion is equal: one minus the system load factor. Given that BC Hydro proposes to classify IPPs separately from Heritage hydroelectric (see section.. of the Application), it is appropriate to adjust the load factor calculation to remove the impact of IPPs serving load. System load factor is calculated based on loads almost entirely served by Heritage hydroelectric supply. Page -

150 Chapter - Cost of Service 0 BC Hydro does not oppose adoption of any of the three Generation classification options. Table of the Discussion Guide for Workshop demonstrated that there is about a 0. per cent change in the Residential R/C ratio if the classification of these costs is switched from a per cent energy / per cent demand classification (BC Hydro s preferred method) to Sensitivity Number... Generation: Heritage Thermal There are three BC Hydro-owned thermal generating stations: Fort Nelson Generating Station (FNG), Prince Rupert Generating Station (PRG) and Burrard Generating Station (Burrard). FNG has the most significant impact on BC Hydro s rates with a F0 forecast of approximately $0 million, compared to about $ million at PRG and $0 million at Burrard. BC Hydro proposes the following: 0 FNG use a load factor approach specific to the Fort Nelson service territory to classify FNG s O&M and capital generation costs. This results in a per cent energy and per cent demand classification. Fuel costs are classified as 00 per cent energy; PRG For simplicity, use the system load factor with no adjustment for IPP supply to classify PRG s O&M and capital generation costs. This results in a 0 per cent energy and 0 per cent demand classification. Fuel costs are classified as 00 per cent energy; and Burrard classify Burrard O&M and capital costs as 00 per cent demand with associated fuel costs treated as 00 per cent energy. The reasons supporting this classification are set out in section of the Workshop Discussion Guide found at Appendix C-B. As described in section. of the Workshop consideration memo, while there was not a fair degree of stakeholder consensus regarding BC Hydro s proposal, the classification method selected for the In the 00 RDA, BC Hydro classified the three Heritage thermal generating stations as 00 per cent demand. Page -

151 Chapter - Cost of Service 0 0 three Heritage thermal generating stations does not change R/C ratios when reported to one decimal place... Generation: Independent Power Producers BC Hydro s preferred IPP classification option is the Value of Capacity option which results in a per cent energy and per cent demand classification. In the 00 RDA BC Hydro classified IPPs as 00 per cent energy-related on the basis that the primary purpose of entering into IPP EPAs is procurement of additional energy. The Commission accepted IPP classification as 00 per cent energy-related but 00 RDA Decision Direction required BC Hydro to prepare a study examining and quantifying the capacity benefits associated with IPP EPAs. In response to Direction and stakeholder feedback at Workshop, BC Hydro engaged the appropriate business units, developed five IPP classification options and undertook an EPA-by-EPA analysis (this analysis is found at Attachment of the Workshop consideration memo at Appendix C-A). At Workshop BC Hydro identified the Value of Capacity option, in which the relative portion of IPP costs allocated to demand is based on the relative portion of capacity benefits from the IPP portfolio over the IPP costs, as preferred for F0 COS study purposes. There was a fair degree of stakeholder consensus for this IPP classification option. Refer to section of the Workshop and section. of the Workshop consideration memos for additional detail... Generation: Demand Side Management BC Hydro proposes to continue classifying the 0 per cent portion of DSM that has been functionalized as Generation-related, in the same way as overall Generation costs. As described in section.., BC Hydro s rationale for functionalizing 0 per cent of DSM to Generation is that DSM expenditures are primarily incurred to avoid generation-related costs, which also avoids the classification of those same costs into energy and demand. Therefore, to be consistent with the rationale for Page -

152 Chapter - Cost of Service 0 0 functionalizing DSM costs to Generation, BC Hydro believes that the classification of Generation-related DSM costs should mirror the classification of overall Generation costs in the revenue requirement... Powerex Net Income BC Hydro proposes continuing with the 00 RDA Direction classification of Powerex net income following overall Generation classification. Virtually all stakeholders who commented on this topic at Workshop agreed with this proposed approach; the only exception was COPE... Transmission BC Hydro s proposes to continue with the 00 RDA Decision approach that Transmission should be classified as 00 per cent demand related. With the exception of COPE, all stakeholders providing Workshop and/or Workshop -related written comments on this topic thought reasonable BC Hydro s proposal to continue with the classification of Transmission as 00 per cent demand-related because serving peak loads remains the primary planning consideration for capital expenditures on the transmission system. Refer to section of the Workshop consideration memo at Appendix C-A. The majority of utilities with similar characteristics to BC Hydro, including Manitoba Hydro, classify Transmission as 00 per cent demand-related... Distribution BC Hydro proposes to classify Distribution costs based on Table of the Workshop Discussion Guide (copy at Appendix C-B) as follows: Substations and primary system classified 00 per cent demand; Transformers classified 0 per cent demand and 0 per cent customer; Secondary/services asset category split 0 per cent secondary and 0 per cent services: Page -

153 Chapter - Cost of Service Secondary portion classified 00 per cent demand; Service portion classified 00 per cent customer; and Meters classified 00 per cent customer. 0 0 As part of the 00 RDA BC Hydro proposed a per cent demand/ per cent customer classification for Distribution. 00 RDA Decision Direction mandated a per cent demand/ per cent customer Distribution classification, and required BC Hydro to conduct minimum system and zero-intercept analysis. The 00 study entitled Electric Distribution System, Cost of Service Study (copy at Appendix B-A), circulated to stakeholders as part of Workshop, addresses this part of Direction. Generally, there are three approaches to classifying distribution costs: () minimum system; () zero-intercept; and () use of professional judgment to separate demand-related and customer-related distribution costs. Classifying distribution plant with the minimum system method assumes that a minimum size distribution system can be built to serve the minimum loading requirements of a customer. The minimum system method involves determining the minimum size pole, conductor, cable, transformer and service that is currently installed by the utility. The resulting minimum distribution system costs are classified as customer costs, with remaining distribution costs classified as demand. The zero-intercept method uses regression analysis to statistically extrapolate what the cost of the facility might be if it did not have any load carrying capability; the no-load intercept is the customer component. This requires considerably more data and calculation than the minimum system method. The COS Consultants recommended approach () on the basis that: the minimum system/zero-intercept methods are labour intensive but produce inaccurate results; and most utilities surveyed (and their regulators) use professional judgment to separate demand-related and customer-related distribution costs rather than relying on minimum system or zero-intercept analyses. For example, the Washington Utilities and Transportation Commission has repeatedly rejected the minimum Page -

154 Chapter - Cost of Service 0 0 system and zero-intercept methods as unreasonable because they are likely to lead to double allocation of costs to residential customers and over-allocation of costs to low use customers. Zero-intercept methods are also critiqued because of their lack of realism. Bonbright rejects the minimum system and zero intercept methods. 0 No stakeholder supported using either the minimum system or zero-intercept methodologies. BC Hydro proposes to classify Distribution costs based on Table of the Workshop Discussion Guide (copy at Appendix C-B). BC Hydro spent considerable time on Distribution classification issues as part of the review of the F0 COS study and concludes that methods outlined in Table of the Discussion Guide are most appropriate. The Workshop consideration memo responds to a number of stakeholder comments on Distribution classification methods and provides further detail on BC Hydro s preferred approach (copy at Appendix C-B). In addition, stakeholder feedback from both Workshop and Workshop indicates that stakeholders recognize that Distribution classification is a challenging topic. Participants generally supported BC Hydro s proposals for the classification of substations, primary system, transformers, secondary system, services and meters... Smart Meter Infrastructure BC Hydro proposes to classify SMI-related costs as 00 per cent customer-related. The classification of SMI was a significant topic during the RDA s stakeholder engagement process. BC Hydro identified five options for classifying SMI costs Jim Lazar, Cost of Service Analysis for the Electric and Natural Gas Industries: A Historic Review of Decisions by the Washington Utilities and Transportation Board, -00, prepared for Public Counsel Section, Office of Attorney General (August 00), page 0; bc!opendocument.these issues have been raised in Canadian utility proceedings - for example, in a 00 Nova Scotia Power proceeding: The minimum-sized method assigns to all customers a share of the cost of a hypothetical distribution system that has real load-carrying capacity. It also assigns demand costs based on every kw of customer demand. The effect is to double count the demand which could be met by the minimum-sized system ; refer to the evidence of John Stulz submitted on behalf of Nova Scotia Utility and Review Board staff, pages 0 to ; 0/RepDemINTERV/RepDem_UC_vsHQ-_PubNS-URB_fev0.pdf. 0 Bonbright, Principles of Public Utility Rates (), supra, note 0 in Chapter, page. Page -

155 Chapter - Cost of Service 0 0 which are described on page of the Workshop consideration memo. These options ranged from classifying SMI costs as 00 per cent customer (Option, BC Hydro s preferred approach) to classifying such costs as 00 per cent energy (Option, rejected by BC Hydro) with blended classifications between customer and energy forming the basis of options,, and. BC Hydro used Option with a 00 per cent customer classification for the F0 COS study. It is simple, defendable from a historical cost allocation perspective and has overwhelming jurisdictional support. As noted in Table of the Workshop consideration memo, classification of SMI does not significantly impact R/C ratios. BC Hydro can revisit this issue in the F0 COS once the Distribution system has feeder-by-feeder metering, which is expected to be rolled out as part of the SMI analytics system sometime in 0... Customer Care BC Hydro proposes to classify Customer Care-related costs as 00 per cent customer related. With the exception of COPE, all stakeholders providing Workshop and/or Workshop -related written comments on this topic agreed with BC Hydro s proposal to classify Customer Care costs 00 per cent as customer-related rather than the current per cent demand/ per cent customer classification mandated by 00 RDA Direction ; refer to section 0 of the Workshop consideration memo at Appendix C-A. Customer Care costs do not vary with demand and a 00 per cent customer classification is consistent with how other utilities treat Customer Care costs.. Allocation The third step in completing the F0 COS study is the allocation of BC Hydro s total functionalized and classified revenue requirement to the rate classes. This is achieved through the use of an appropriate allocation methodology. Page -0

156 Chapter - Cost of Service.. Direct Assignment Costs incurred to provide unique service to one rate class are assigned directly to that rate class: 0 Costs of operating and maintaining street lights and pole attachments are unique to the Street Lighting rate class. Section. of the F0 COS study model at Appendix E shows the removal of Distribution costs associated with Street Lighting prior to the classification of Distribution costs; $. million of costs are removed from the functionalized Distribution cost and directly assigned to Street Lighting; and BC Hydro proposes to direct assign BC Hydro owned Distribution transformer costs to the rate classes using the method described in the Workshop presentation (slides to ) and section.. of the Workshop consideration memo to the October workshop (copies at Appendix C-B). 0.. Generation Energy Energy costs are allocated based on each rate class s pro rata share of energy consumption. Therefore the cents/kwh Generation costs of serving each rate class are identical under the F0 COS study embedded cost methodology. As described in the Workshop consideration memo, the vast majority of other utilities use this approach to allocate generation energy costs. Note that Generation energy is adjusted for losses prior to allocation. Before the pro rata calculations are done, transmission and distribution losses of per cent and per cent respectively are added to the energy consumption of distribution customers while transmission losses of per cent are added to the energy consumption of transmission voltage customers. These loss assumptions were reviewed as part of the 00 RDA and BC Hydro continues to believe they are valid as discussed in section... Page -

157 Chapter - Cost of Service Distribution losses Combined distribution losses through primary lines, transformer cores, secondary wires and theft is currently estimated at per cent. The source of distribution loss information is engineering studies that have been verified using a load research model called the Distribution Load Shape Estimation that estimates hourly distribution loads and applies loss factors for each distribution circuit for each hour of the year. Within the next to months BC Hydro plans to have metering in place on every distribution feeder, which is expected to improve the accuracy of loss estimates on the distribution system.... Transmission losses Transmission losses vary year to year depending on the volumes of energy imported and exported into the BC Hydro system. In recent years BC Hydro estimates that transmission losses ranged between per cent and per cent. BC Hydro has the ability to measure transmission system losses on an hourly basis using metering on the U.S. and Alberta interties, generators within BC Hydro s service area, and at certain points on the transmission system. BC Hydro believes the current per cent assumption remains valid for the F0 COS study... Generation Demand and Transmission Generation demand-related and Transmission costs are typically allocated on the basis of the system s CP demand because it is combined system demand at peak times that drives Generation capacity and Transmission needs. A rate class s CP allocation is calculated as a five-year average of the sum of that rate class s demand at each winter month s peak hour divided by the sum of all rate classes demand during those same hours. Stakeholders providing Workshop -related written comments generally agreed with BC Hydro s proposal to continue with 00 RDA Decision Direction, which mandates a CP allocation of Generation demand-related and Transmission costs on the basis that winter peak occurred in each of the months from November through January in recent years and that the Page -

158 Chapter - Cost of Service 0 0 February peak is often close to the annual peak. While BC Hydro provided sensitivities at Workshop (CP, variations on CP), the results indicate little change from the current CP approach. Refer to sections and of the Workshop Discussion Guide and section of the Workshop Consideration Memo (both at Appendix C-A) and the Workshop slide deck, slides to (at Appendix C-B) for additional detail... Distribution The conventional approach is to allocate Distribution demand-related costs on the basis of NCP (excluding transformer costs which are directly assigned to the rate classes), which are the sum of individual class peak demands regardless of the time of occurrence. The reason for use of NCP is that Distribution demand costs are driven by local network requirements, which do not necessarily coincide with the BC Hydro integrated system CP demand. BC Hydro s proposed methodology for assigning Distribution demand-related costs is based on average rate class load profiles for five years. For each year of data, each rate class is assigned a NCP percentage allocator based on its annual peak load as a proportion of the sum of all the rate classes annual peak load, which is in line with industry practice. In response to BCOAPO s inquiry at Workshop regarding consideration of possible modifications of the NCP allocator, BC Hydro calculated NCP and NCP allocators. BC Hydro prefers NCP allocator as this most closely approximates BC Hydro s planning criteria used for the design and construction of Distribution facilities. The NCP allocator provides the best representation of diversified class loads on the Distribution system. In BC Hydro s view use of a NCP (or a NCP) allocator results in averaging which is inconsistent with how BC Hydro plans its Distribution system and would dilute this estimate away from class peak demand levels. Furthermore, a NCP approach produces results reasonably close to the bottom up analysis conducted across the ~00 distribution The NCP was calculated for each rate class by adding the three highest monthly peak demands and dividing by the sum of the three highest monthly peak demands across all rate classes. Page -

159 Chapter - Cost of Service 0 feeders. Refer to section.. of the Workshop consideration memo (Appendix C-B) for additional detail... Customer Care Currently, Customer Care costs are allocated to rate classes using a 0 per cent/0 per cent weighted allocator between number of customers and revenue by rate class. This allocation method remains appropriate for the reasons discussed in section of the Discussion Guide for Workshop. Figure of the Workshop Discussion Guide demonstrates that the existing 0 per cent/0 per cent allocator aligns well with a direct allocation of Customer Care costs to rate classes.. Summary of F0 Cost of Study Methodology Changes, Rate Class Revenue to Cost Ratios and Rate Class Cost Classification Table - summarizes the methodology changes arising between the time the draft F0 COS study circulated to stakeholder on February, 0, and the final F0 COS study. See pages to ; copy found at Appendix C-B. Page -

160 Chapter - Cost of Service Table - Summary of F0 COS Study Methodology Changes Change IPP Capital Leases The per cent/per cent IPP classification was originally calculated using IPPs categorized under Cost of Energy. BC Hydro has incorporated the capital lease IPPs into the classification calculation and determined the impact on classification is negligible. NCP Allocator Separate NCP allocators are used to allocate distribution demand related costs to primary and secondary distribution customers. The draft model used a single allocator covering all distribution customers. Street Lighting BC Hydro proposes separating the existing Street Lighting rate class into BC Hydro-owned and customer-owned street lighting as described in section. of the Application Impact on F0 Residential R/C ratio None None None The resulting R/C ratios for BC Hydro s existing rate classes are set out in Table -. For reference, the draft F0 R/C ratios, prepared in January 0 and posted to the RDA website for stakeholder comment in February 0, are also shown. See Attachment of the Workshop consideration memo at Appendix C-B for more information. Page -

161 Chapter - Cost of Service Table - R/C Ratios Rate Class R/C Ratios Final F0 COS Study results Final Study filed in the RDA (%) Draft F0 COS study posted to RDA website in February 0 (%) F0 Fully Allocated COS Filed on February, 0 with the Commission (using 00 RDA decision) (%) COLUMN A B C Residential... SGS.0.0. MGS LGS Irrigation... Street Lighting... Transmission Total Classes The F0 COS study cost allocation was presented at Workshop and is reproduced in Table - as it informs RIB rate and SGS rate basic charge cost recovery of customer-related costs (sections... and... respectively of the Application), and MGS and LGS demand charge recovery of demand-related costs (sections.. and.. respectively of the Application). BC Hydro is preparing to segment the Street Lighting rate class. See section. of the Application. Slide of the Workshop presentation slide deck found at Appendix C-B of the Application. Page -

162 Chapter - Cost of Service Table - F0 Cost of Service Study Cost Classification Rate Class Energy (%) Demand (%) Customer (%) Residential SGS 0 MGS LGS 0 Transmission 0 Irrigation Street Lighting 0 Page -

163 Chapter Rate Class Determination

164 Chapter - Rate Class Determination Table of Contents. Introduction and Chapter Structure Residential Rate Class Dwelling Type and Heating Type Residential E-Plus Customers General Service Rate Classes Small General Service Medium General Service/Large General Service Existing LGS/MSG Breakpoint Potential Extra Large General Service Class Re-Merging the Medium General Service and Large General Service Rate Classes Segmenting Municipalities, Universities, School Boards and Hospitals Transmission Service Rate Class BC Hydro Assessment and Stakeholder Comment BC Hydro Proposal Irrigation Rate Class Street Lighting... - List of Figures Figure - Load Factor Ranges for General Service Customers... - Figure - Coincident Peak $/kw Cost by Segment... - Figure - Cents per kwh Cost by Segment... - Figure - Re-Merged MGS Bill Impacts... - Figure - Re-Merged LGS Bill Impacts... - Figure - Irrigation Rate Class Peak Profile... - List of Tables Table - Expanded Canadian Jurisdictional Review of General Service Segmentation... - Table - Customer Load Characteristics Page -i

165 Chapter - Rate Class Determination Table - Summary of FortisBC/New Westminster Characteristics and R/C Ratios Table - Summary of New Westminster/FortisBC Segmentation Pros and Cons Table - Street Lighting Rate Schedules and Ownership... - Table - Street Lighting R/C Ratios... - Page -ii

166 Chapter - Rate Class Determination 0. Introduction and Chapter Structure As noted in section. of the Application, BC Hydro currently has seven rate classes: Residential, SGS, MGS, LGS, Transmission, Irrigation and Street Lighting. In the 00 RDA proceeding, BC Hydro stated that rate classes are used to group customers with similar load profiles and similar interconnection characteristics on the basis that such customers will generally cause the utility to incur similar costs. The COS Consultants advised that two main criteria can be used to inform a COS-based determination of appropriate rate classes. As listed at page of the Workshop a/b consideration memo at Appendix C-A and in section. of the Workshop consideration memo at Appendix C-A, these two criteria are: Load characteristics (peak demand, annual energy, coincident- and non-coincident demand); and Service characteristics (voltage, single or three phase, transformer ownership). 0 E advised that customers should be segmented using readily observable variables that can be easily understood (which are described below), and noted that in addition to load characteristics and service characteristics, other criteria can be considered such as customer understanding (simplicity) and practicality of tariff administration. BC Hydro uses the expression segmentation to refer to the creation of sub-classes of customers defined by certain characteristics. Potential segmentation falls into two categories: that which may be justifiable on a cost of service basis and that which Refer to BC Hydro s response to BCUC IR.., Exhibit B- in the 00 RDA proceeding; B-_BCH-Resp-to-IR--final.pdf. Slides to of the Workshop presentation (at Appendix C-B) contain additional details concerning load characteristics and service characteristics. Refer to the Direct Testimony of Dr. Ren Orans, Appendix J of the BC Hydro 00 LGS Application; copy available at 00_0_%0APPL_0LGS.pdf. Page -

167 Chapter - Rate Class Determination cannot. Additional segmentation based on cost of service can lead to increased transparency and better matching of costs and revenues. Possible ways customers can be segmented arose during the 0 RDA stakeholder engagement process. This Chapter is organized around this stakeholder input as follows: 0 0 Section. Residential rate class. BC Hydro proposes no change to the existing Residential rate class for Module purposes. COPE asked BC Hydro to explore segmenting the Residential rate class on the basis of dwelling type, heating type and/or number of occupants. After meeting with COPE on June, 0, COPE agreed with BC Hydro s analysis that there is no cost of service basis for segmentation by heating type, dwelling type or the number of occupants. No stakeholder challenged the composition of the existing Residential rate class. As part of Module, BC Hydro will explore whether it remains appropriate for certain farm service activities to be served pursuant to Residential rates; Section. General Service rate classes. BC Hydro proposes no changes to the existing LGS, MGS and SGS rate classes for Module purposes. No stakeholder challenged the existing breakpoint defining the SGS rate class. Several stakeholders asked BC Hydro to review: (i) the existing breakpoint between MGS and LGS; and (ii) creating a new class of large LGS customers (referred to as XLGS with demand greater than,000 kw). BC Hydro commits to re-examining a potential XLGS rate class as part of its assessment of a RS -like rate (LGS TSR-Like rate) for such a class as a RDA Module topic. COPE asked BC Hydro to explore: (iii) re-merging the LGS and MGS rate classes at this time; and (iv) creating a rate class of General Service customers consisting of municipalities, universities, school boards and hospitals (referred to as the MUSH sector); and Section. Transmission Service rate class. BC Hydro proposes no changes to the existing Transmission Service rate class for Module purposes. AMPC Page -

168 Chapter - Rate Class Determination 0 0 asked BC Hydro to consider creating rate class(es) for New Westminster and FortisBC. While BC Hydro assessed New Westminster and FortisBC load characteristics, BC Hydro proposes to address the issue of potentially separating New Westminster and FortisBC from the remainder of the Transmission Service rate class as part of the F0 COS when the ramifications will be better understood (e.g., the potential for rate rebalancing from F00 onward). In addition, BC Hydro assessed the existing Irrigation and Street Lighting rate classes, and proposes to divide the Street Lighting rate class into two classes: BC Hydro-owned street lighting and customer-owned street lighting. Refer respectively to sections. and. of this Chapter. BC Hydro will be exploring the suitability of RS 0 (Irrigation) for municipal and hotel/golf course customers in RDA Module.. Residential Rate Class BC Hydro proposes no change to the existing Residential rate class for Module purposes. Consequently, BC Hydro is not proposing any changes to the definition of Residential Service in section of the Electric Tariff. As noted in section.. of the Application and above, the issue of farm service and the availability of Residential rates to farms will be addressed as part of RDA Module. Thus RDA Module will consider aspects of the current scope of Residential service... Dwelling Type and Heating Type At Workshop a/b COPE asked BC Hydro to examine segmenting by type of dwelling and/or number of occupants and/or end use (space heating) to determine if it made sense. No other stakeholders raised Residential rate class segmentation issues during the 0 RDA stakeholder engagement process. BCOAPO asked questions concerning potential differentiated Residential low income rates based on primary heating type as part of its Workshop written feedback, but this is a rate Copy found at Appendix C-B of the Application. Page -

169 Chapter - Rate Class Determination design and pricing issue. Refer to section. of the Application for an overview of 0 RDA stakeholder engagement discussion concerning low income rates. BC Hydro responded to COPE s request that BC Hydro explore Residential rate class segmentation in the Workshop a summary notes, 0 during a meeting held with COPE on June, 0, and at Workshop. BC Hydro concludes: 0 0 Segmenting by dwelling type there is less of a correlation between dwelling type and cost to serve Residential customers as compared to other factors. Differences in BC Hydro s cost of serving Residential customers are driven generally by the time of their energy consumption and more specifically by coincidence of customer load profiles with the system peak. The coincidence of load is much more driven by heating type than dwelling type. There would also be significant tariff administration and customer understanding issues associated with developing and defining the categories of dwelling types (e.g., apartment/condominium; mobile; duplex/row house/townhouse; SFD, etc.); Segmenting by number of occupants there is no cost basis for segmentation on the basis of personal characteristics such as the number of occupants. There would also be significant tariff administration and customer understanding issues associated with the variability of the number of occupants and the challenges with tracking and verifying such information; Segmenting by heating type there are significant tariff administration and customer understanding issues because there is a continuum of heating sources (e.g., with various mixed uses of natural gas and electric space heating somewhere in the middle of the spectrum). The 0 REUS confirms that a wide variability exists. The assorted end-use mix creates a single continuous distribution of consumption where separating customers legitimately by any 0 See the response to Part question on page, Attachment to the Workshop a/b consideration memo at Appendix C-B. A copy of the summary notes for this meeting is found at Appendix C-D. Refer to slides to 0 of the Workshop presentation slide deck at Appendix C-B. Refer to Tables -a, -b, -a and -b at pages to of the 0 REUS, a copy of which is found at Appendix C-F. Page -

170 Chapter - Rate Class Determination single end use is difficult to accomplish without being subject to some form of non-cost based discrimination; and This last observation is consistent with the finding that all surveyed Canadian electric utilities have a single uniform residential class of customers with no end-use segmentation. 0.. Residential E-Plus Customers BC Hydro also considered whether Residential E-Plus customers should be a separate rate class but concluded that the impact was too insignificant to justify such a change. Residential E-Plus customers account for approximately 0. per cent of revenue from the Residential rate class in F0 and their removal from the Residential rate class would lead to about a 0. per cent increase in the R/C ratio of remaining Residential customers. Residential E-Plus R/C ratios are discussed in section.. of the Application.. General Service Rate Classes BC Hydro proposes no change to three existing General Service rate classes for Module purposes, which are: 0 SGS General Service customers whose billing demand is less than kw. The SGS kw breakpoint has existed since at least ; MGS General Service customers whose billing demand is equal to or greater than kw but less than 0 kw and whose energy consumption in any -month consecutive period is equal to or less than 0,000 kwh. The existing MGS rate class was created as part of Commission Order No. G-0-0 approving the 00 LGS Application NSA; and BC Hydro estimates the primary heating fuel type (electric or non-electric) by account using statistical modeling techniques. The fuel type classification is used in aggregate analysis of the Residential rate class for load forecasting, DSM planning and DSM evaluation. The fuel type classification does not reflect the full continuum of heating fuels, including secondary heating fuels, used by customers. As with all statistical modeling efforts, there is uncertainty in the results. Page -

171 Chapter - Rate Class Determination LGS General Service customers whose billing demand is equal to or greater than 0 kw or whose energy consumption in any -month period is greater than 0,000 kwh. The existing LGS rate class was created as part of Commission Order No. G-0-0 approving the 00 LGS Application NSA. The central issue with respect to the LGS, MGS and SGS rate classes is their within class diversity: 0 There are a wide range of facility types such as hospitals, sawmills, manufacturing facilities, office building, retail stores and common areas of multi-unit residential buildings; and There are a wide range of consumption levels and load factors. For example, within the LGS rate class, there is a GWh (00 per cent of the average annual consumption in the class) energy consumption difference between the th and th percentile customers. 0 Figures -, - and - and accompanying text in Chapter provide additional detail on this topic. In response to feedback from stakeholders following Workshop a/b, BC Hydro undertook an analysis of the COS, primarily associated with the load characteristics of its SGS, MGS, and LGS rate classes, together with a jurisdictional assessment. The purpose of the analysis was to answer questions concerning load and cost diversity within the three existing General Service rate classes at different class segmentation breakpoints other than the existing breakpoints. BC Hydro presented the results of its analysis at Workshop a and Workshop... Small General Service The existing kw breakpoint is appropriate for BC Hydro s smallest commercial customers served pursuant to RS 00/0/0/: Refer to the Workshop a/b Appendix found at Appendix C-B of the Application, slides to. Page -

172 Chapter - Rate Class Determination BC Hydro s jurisdictional review, summarized in Table - below, revealed that surveyed Canadian electric utilities have small general service classes which do not have demand charges, and that the current SGS kw breakpoint is in the middle of the range of other Canadian electric utility breakpoints used for smaller general service (0 kw to kw); Table - Expanded Canadian Jurisdictional Review of General Service Segmentation Utility/Number of General Service Customers BC Hydro ~,000 customers FortisBC ~,00 customers FortisAlberta ~,000 customers Enmax ~,000 customers Epcor ~,000 customers SaskPower ~0,000 customers Manitoba Hydro ~,000 customers Hydro One ~,000 customers Small Medium Large Extra Large < kw (0,000 customers) No demand charge <0 kw (,00 customers) No demand charge < kw (,000 customers) <000 kwh /month (,000 customers) No demand charge <0 kva (,000 customers) No demand charge - 0 kw (,000 customers) 0-00 kw (,00 customers) kw - MW (,000 customers) <0 kva (,000 customers) 0-0 kva (,000 customers) >0 kw (,000 customers) >00 kva (0 customers) < kva - MVA > MVA <00 kva >00 kva ( customers) <0 kw (,000 customers) No demand charge >0 kw (,000 customers) > MW (0 customers) >0 kva (,000 customers + primary) 0 kva - MVA (,000 customers + 0 primary) Hydro Ottawa <0 kw 0-00 kw 00 kw - MW > MW > MVA (0 customers: site-specific rates) Table - was presented as Table in section of BC Hydro s Workshop a/b consideration memo (Appendix C-A). Note the following: Table - has been corrected to remove the reference under Manitoba Hydro that defines a small general service class as 0 kva. The Manitoba Hydro small general service class is defined by demand 00 kva. Customers within that class face an inclining block demand charge, but for demand less than 0 kva there is no charge under that structure; and Table - has also been corrected to remove the reference under Newfoundland Power that the small general service class does not pay a demand charge; rather, customers face a seasonal demand charge as reported in Table of the Workshop a/b consideration memo. As noted in footnote, Manitoba Hydro defines its small general class as demand 00 kva, but for demand less than 0 kva there is no demand charge. Page -

173 Chapter - Rate Class Determination Utility/Number of Small Medium Large Extra Large General Service Customers ~,000 customers (,000 customers) No demand charge (,000 customers) ( customers) ( customers) Toronto Hydro ~,000 customers Hydro Quebec ~,000 customers Newfoundland Power ~,000 customers <0 kw (,000 customers) No demand charge < kw (,000 customers) <0 kw (,000 customers) kw (,000 customers) >0 kw (,000 customers) <00 kw (,000 customers) - MW (0 customers) > MW (00 customers) kva (,000 customers) > MW ( customers) >000 kva ( customers) 0 As described in section. of the Workshop a/b consideration memo at Appendix C-A, no stakeholder questioned the existing kw breakpoint for the SGS rate class; and The smallest general service customers tend to have lower load factors than MGS and LGS customers, as shown in Figure - below. Load factor is a customer s average demand divided by their peak demand. Low load factors are indicative of customers that are relatively more costly to serve, and load factor is therefore a consideration when evaluating rate class segmentation. Cumulatively, more than 0 per cent of SGS customers have a load factor under 0 per cent, while that same load factor range applies to only around 0 per cent of MGS and LGS customers. Refer to page of the Workshop a/b Consideration memo at Appendix C-A. Page -

174 Chapter - Rate Class Determination Figure - Load Factor Ranges for General Service Customers SGS MGS LGS Percent of Customers in Range 0% % 0% % 0% % 0% <0% <0% <0% <0% <0% <0% <0% <0% <0% <00% Load Factor Range 0.. Medium General Service/Large General Service... Existing LGS/MSG Breakpoint The history of the existing LGS/MGS breakpoint is canvassed in section of the Workshop a/b consideration memo and summarized here. E recommended in 00 that BC Hydro continue to use kw demand intervals (e.g., below kw, above kw) as the basis for General Service rate class segmentation. E found that of General Service rate schedules reviewed across Canada and the U.S. use kw demand to determine a General Service rate schedule s applicability. E also found that statistical clustering of cost data indicated there are two potential segmentation breakpoints: 00 kw and 0 kw. The 00 LGS Application, discussed in section... of the Application, used the 0 kw breakpoint. As described in Workshop A, BC Hydro determines the majority of its costs to be driven by the three primary customer load characteristics set out in Table -. The additional energy basis for segmenting between LGS and MGS arose from the 00 LGS Application NSA; refer to sections and of Appendix B to Commission Order No. G-0-0. Page -

175 Chapter - Rate Class Determination Table - Customer Load Characteristics Cost Classification Allocator Percentage of Costs for General Service Rate Classes (%) Generation Energy kwh. Generation & Transmission Demand CP 0. Distribution Demand NCP. 0 0 BC Hydro s COS methodology allocates Generation energy costs to rate classes on a per kwh basis which does not vary by time period or customer size. Since all customers have the same generation energy cost of service (on a dollar per kwh basis), energy costs are not a driver for rate class segmentation. Generation and Transmission demand costs are allocated to rate classes by each rate class s peak demand during the four winter months (coincident peak demand). Based on the F0 COS, more than 0 per cent of BC Hydro s total costs and per cent of demand-related costs are allocated based on coincident peak demand. Other things being equal, customers with higher coincident peak demands will have a higher cost of service. Therefore, a customer s coincident peak demand is a major consideration in segmenting rate classes. Distribution demand costs are allocated to rate classes by each rate class s annual NCP. For the segmentation study, BC Hydro used each customer s or subgroup s contribution to the NCP of their respective existing class (SGS, MGS, or LGS). Like coincident peak demand, customers with higher NCP demand will have a higher cost of service. However, since Distribution costs are assigned proportionate to NCP, the cost per NCP kw does not vary and a $/kw analysis cannot be used to identify cost differences between segments. The jurisdictional review revealed that most Canadian jurisdictions segment general service customers into larger and smaller general service categories, with three general service rate classes appearing to be most common. Page -0

176 Chapter - Rate Class Determination BC Hydro undertook two COS-based analyses for purposes of examining whether the existing MGS/LGS breakpoint remains appropriate: 0 0 Individual customer by sampling (Method ) As described in section. of the Workshop a/b consideration memo (Appendix C-A), BC Hydro analyzed a random sample of,000 customers from each of its SGS, MGS, and LGS rate classes. The results of Method were not conclusive; and Customer Clustered by Size (Method ) As presented at Workshop, this consisted of cost analyses for clusters of customers based on the size of their annual peaks. The Method cost analysis showed no compelling reason to deviate from the 0 kw breakpoint. As discussed earlier, customer demand at the time of the CP coincident peaks is a major driver of differences in customer cost of service. Figure - below shows the total coincident peak demand costs for each customer group divided by the NCP demand of the group. The coincident demand costs, associated with the Generation or Transmission functions, were found to generally decline with customer size on a dollar per kw basis for LGS and MGS customers. However, it is difficult to pinpoint a clear breakpoint in the downward trend of unit costs on a dollar per kw coincident peak basis that would justify additional segmentation within these classes. 0 Refer to slides to of the Workshop presentation at Appendix C-B for details concerning the analysis methodology. Refer to page of the Workshop a/b Consideration memo at Appendix C-A. Page -

177 Chapter - Rate Class Determination Figure - Coincident Peak $/kw Cost by Segment.0 00% 0%.00 0% $/kw % 0% 0% 0% 0% Percentage of Customers in Segment.0. 0% 0% over 00 % of customers $/kw CP Costs 0% In Figure - below, BC Hydro supplements the analysis presented at Workshops a/b and with analysis of the full COS (energy, demand and customer costs) allocated to the same segments on a dollar per kwh basis. Because the MGS and LGS customers tend to have higher load factors as size increases, the average COS of each group declines with size. Because of the smooth nature of the decline, there is no compelling reason to deviate from the current 0 MW breakpoint, which is consistent with the conclusion from Figure - above. Page -

178 Chapter - Rate Class Determination Figure - Cents per kwh Cost by Segment.00 00% 0%.0. 0% /kwh % 0% 0% 0% 0% Percent of Customers in Segment.00 0% 0% over 00 % of customers cents/kwh 0% 0 For these reasons, and based on stakeholder input discussed below, BC Hydro proposes to maintain the existing breakpoint between the MGS and LGS rate classes. As described in section... of the Application, while BC Hydro considered all input it received, where it conflicts BC Hydro gave more weight to the views of customers in the rate class who take service under the particular rates being assessed except on issues where there could be cost implications to other rate classes. Given that forecast revenue neutrality is used for the SGS, MGS and LGS rates, and given the Rate Rebalancing Amendment discussed in section... of the Application, there are no cost implications to other rate classes with respect to General Service segmentation issues. Accordingly, BC Hydro gave weight to the views of AMPC who represents some LGS customers, CEC, and individual LGS and Page -

179 Chapter - Rate Class Determination 0 0 MGS customers. In its Workshop a/b feedback, CEC states that there appears to be no evidentiary basis to improve upon the status quo, and therefore CEC concludes that status quo segmentation of the General Service rate classes should be maintained. AMPC does not contest the existing MGS/LGS breakpoint, and no LGS or MGS customer suggested the existing breakpoint is inappropriate.... Potential Extra Large General Service Class For RDA Module purposes, BC Hydro committed to further explore the appropriateness of segmenting some of the largest LGS customers, perhaps those greater than MW, into a separate rate class. AMPC and a LGS customer, Viterra, suggested at Workshop b that BC Hydro consider proposing a separate large LGS segment with the ability to define and adjust baselines annually, similar to RS. There is jurisdictional support for a XLGS rate class; for example, FortisAlberta has a,000 kw General Service breakpoint; Epcor has a,000 kw breakpoint; SaskPower has a,000 kw breakpoint; Toronto Hydro has a,000 kw breakpoint; and Hydro Quebec has a,000 kw breakpoint. BC Hydro assessed the cost basis for the creation of a XLGS rate class with demand greater than,000 kw. As described above in section..., it is difficult to pinpoint a clear breakpoint where the downward trend in the per unit COS begins. A,000 kw breakpoint would encompass LGS accounts. The XLGS segmentation issue is connected to the feasibility of administering a LGS TSR-Like rate for or so accounts; this is described in section... of the Application. BC Hydro commits to undertaking additional engagement with AMPC and LGS customers who potentially would take service under a LGS TSR-Like Rate, and bringing forward its analysis and proposal as part of RDA Module. Refer to slide of the Workshop a presentation slide deck at Appendix C-A of the Application. This data is based on LGS account peak demand in calendar year 0. Page -

180 Chapter - Rate Class Determination 0... Re-Merging the Medium General Service and Large General Service Rate Classes The majority of stakeholders at Workshops a/b and Workshop commented that it was premature to consider re-merging the LGS and MGS rate classes given the uncertainty as to the respective default rate structures to be set by the Commission through its RDA Module decision, and in particular whether the Commission-approved rate structures for LGS and MGS differ. As part of its Workshop a/b feedback, Loblaws Companies Limited (Loblaws), with LGS and MGS accounts, commented that re-merging the LGS and MGS rate classes is not necessary at this time. TransLink, with LGS and MGS accounts, stated that re-merging the two rate classes should only be considered if the same rate design is approved by the Commission for both classes. BC Hydro agrees with these comments and opposes re-merging the LGS and MGS rate classes at this time. In addition, as noted in the Workshop a/b consideration memo at Appendix C-B, eliminating the existing MGS/LGS split would lead to significant bill impacts for LGS customers. Figure - and Figure - below illustrate the bill impacts to MGS and LGS customers respectively. As noted in section... of the Application, BC Hydro uses the 0 per cent bill impact test as an amber signal. 0 MGS customers: Other than the extremely low load factor, low consumption customers, all other MGS customers have a bill impact less than the RRA rate increase, or a much lower bill than otherwise. About,000 MGS accounts (0 per cent of MGS accounts) have F0 bill impacts of 0 per cent or greater. F0 estimated rates for the merged MGS-LGS class are: Demand charge: $./kw; Energy rate:.0 cents/kwh; Basic charge: $0./day (same as F0 status quo MGS and LGS rates). The rates are computed assuming BC Hydro s preferred demand charge cost recovery of per cent for MGS and per cent and demand charge cost recovery for LGS. Page -

181 Chapter - Rate Class Determination Figure - Re-Merged MGS Bill Impacts LGS - Most customers see a substantial increase in their bills. About,00 LGS accounts (0 per cent of LGS accounts) have F0 bill impacts of 0 per cent or greater. Figure - Re-Merged LGS Bill Impacts 0... Segmenting Municipalities, Universities, School Boards and Hospitals As noted in section. of the Workshop a/b consideration memo, BC Hydro undertook both a COS analysis and a jurisdictional review to respond to COPE s request that BC Hydro assess the merits of creating a new MUSH sector rate class: BC Hydro compared a sample of MUSH customers to a sample of,000 General Service customers. BC Hydro concludes that while MUSH entities tend to have lower load factors, they have similar levels for coincidence factor (which drives demand cost allocation), as compared to the General BC Hydro used the North American Industry Classification System codes for Educational Services, Health Services, Municipal Pumping, Public Hospital, Public School and University/College. Page -

182 Chapter - Rate Class Determination Service sample. Given the comparison, BC Hydro concludes there is not a cost basis to segment MUSH customers; No surveyed Canadian electric utility separates the MUSH sector for COS and rate class purposes. Yukon Electrical Company Limited (YECL) has separate rate schedules for municipal and federal/territorial governments, and rates are typically equivalent or higher than the corresponding non-government General Service rates Transmission Service Rate Class BC Hydro proposes no changes to the existing Transmission Service rate class for Module purposes. The sole issue concerning the existing Transmission Service rate class arising from the 0 RDA stakeholder engagement processes concerned whether FortisBC and New Westminster should be separated out as unique rate class(es) within the COS. The treatment of FortisBC and New Westminster for rate class purposes was not raised as an issue in the 00 RDA proceeding. The load profiles from both FortisBC and New Westminster were not separately taken into account as part of the allocation of Generation and Transmission demand-related costs as part of the 00 RDA COS study. Rather, individual load profiles for all industrial and commercial Transmission Service customers were summed and then scaled to match the energy sales from industrial Transmission Service, commercial Transmission Service, and sales to other utilities including New Westminster and FortisBC. BC Hydro is now using specific load profile information for New Westminster and FortisBC in the F0 COS study... BC Hydro Assessment and Stakeholder Comment The following inputs informed BC Hydro s assessment of whether Fortis BC and New Westminster should be separated out as rate class(es) within the COS: Refer to Figure in the Workshop a/b consideration memo at Appendix C-B. Page -

183 Chapter - Rate Class Determination 0 Prior BC Hydro COS treatment. As reported at Workshop and in section. of the Workshop 0 consideration memo (found at Appendix C-B), in the COS there was a separate rate class for West Kootenay Power and Light Company (now FortisBC). This class continued to be identified separately in BC Hydro s COS study submitted to the Commission on June,. For the 00 RDA, BC Hydro s COS study used a single Transmission voltage rate class capturing all customers served at transmission voltage whether they are industrial (forestry, chemical plants), commercial (universities, pipelines) or other utilities purchasing power from BC Hydro (FortisBC and New Westminster); 0 Jurisdictional assessment. BC Hydro undertook review of other Canadian electric utilities to determine how they treat sales to other utilities for COS/rate class purposes. FortisBC resells power to municipal utilities within its service territory and FortisBC identifies these utilities as a separate rate class within its 00 COS study. Other surveyed utilities have separate rate classes for other utility sales in their COS studies. An example is SaskPower s 0 COS study and related Rate Application, which considers sales to the cities of Saskatoon and Swift Current as part of a separate Reseller rate class; Analysis of the load profiles of FortisBC, New Westminster and the remaining Transmission Service customers. For the Workshop consideration memo found at Appendix C-A, BC Hydro developed a graph 0 showing coincident factor and load factor that illustrated FortisBC and New Westminster as having load profiles that are relatively unique when compared to Transmission Service Refer to Appendix A, page of FortisBC s 00 RDA; B- _FortisBC%000%0Rate%0Design%0Application.pdf. The Commission decided that all of FortisBC s wholesale customers should be a single rate class for COS purposes; refer to the 00 FBC RDA Decision, page. Section.0 of SaskPower Rate Application (October 0); 0 Refer to Figure on page of the Workshop Consideration Memo at Appendix C-A. Page -

184 Chapter - Rate Class Determination 0 0 customers. FortisBC and New Westminster have much lower load factors (e.g., FortisBC has a load factor around per cent and New Westminster has a load factor of about per cent) and have load shapes that are highly coincident to BC Hydro s system peak. BC Hydro notes that a few other Transmission Service customers have either load factors or coincident factors comparable with New Westminster and FortisBC; however, these customers are relatively small with the largest purchasing about 0 GWh per year as opposed to annual consumption between 0 GWh and 00 GWh from the two utilities; Individual Customer R/C ratio analysis. In an effort to assess intra-class variability within the Transmission Service rate class, BC Hydro used F0 hourly load data for each Transmission customer to assign F0 costs to individual customers on a pro rata basis using common allocators from the F0 COS study. More than 00 Transmission Service customers were included in the analysis. The table found at slide 0 of the Workshop presentation (found at Appendix C-B) showed there is a variation in R/C ratios by industry within the Transmission Service class. The differences are primarily attributable to differences in coincidence factor, customer load factor, and whether the customer has displaced Tier purchases if they are on RS ; and The stakeholder input described below. Table - below summarizes the differences between New Westminster, FortisBC and the remaining Transmission Service customers using forecast energy sales and revenue for F0 and averaged actual load profile information from the five year period between F00 and F0 to calculate load factor and coincidence factors. Figure of the Workshop Consideration Memo compared the winter peak loads against load factor and showed that three of the exempt customers UBC, SFU and YVR are not that different from other Transmission voltage customers. Page -

185 Chapter - Rate Class Determination Table - Summary of FortisBC/New Westminster Characteristics and R/C Ratios FortisBC New Remaining Transmission Westminster Service Customers Energy sales (GWh), Revenue ($ million).. Coincidence Factor (%) 0 0 Load Factor (%) Individual R/C Ratios (%).. 0. Combined Transmission Service R/C Ratio (%) 0. As noted in section. of the Workshop 0 consideration memo, BC Hydro communicated the possibility of separate rate class treatment to New Westminster and FortisBC before Workshop : New Westminster was notified on July, 0. BC Hydro also met with New Westminster on July, 0 to discuss among other things separate rate class treatment; and 0 FortisBC was notified on July, 0. BC Hydro consulted on the issue of segmenting the Transmission Service rate class during Workshop and distributed the following table for stakeholder comment: Alternative : Preferred at time of Workshop Table - DESCRIPTION Create separate rate classes for both FortisBC and New Westminster in the COS study Summary of New Westminster/FortisBC Segmentation Pros and Cons DISCUSSION It is common for other utility sales to be placed in a separate rate class in COS studies; Previous BC Hydro COS studies considered other utility sales as a separate rate class; The load factors of both of these utilities more resemble a residential customer rather than an industrial customer; Both customers are large relative to the Transmission Service rate class average; Enhances transparency; Two separate rate classes would be more appropriate than one separate rate class because FortisBC has generation and market access, and a hybrid utility/customer relationship with BC Hydro (confirmed in Commission s RS 0 Decision and discussed in section. of the Application) while New Westminster has no generation assets and a customer relationship with BC Hydro (New Westminster purchases all of its power from BC Hydro) Page -0

186 Chapter - Rate Class Determination DESCRIPTION Alternative Create a combined Other utility sales rate class for these two utilities Alternative Status quo FortisBC and New Westminster remain in the Transmission Service rate class DISCUSSION Simpler than Alternative Simpler than Alternatives and Removing FortisBC and New Westminster from the Transmission Service rate class results in a small. percentage point increase in the R/C ratio of the remaining Transmission Service customers relative to the combined rate class (0.% vs. 0.%); The analysis on slide 0 of the Workshop presentation showed that the differential between an individual customer s R/C ratio and the Transmission Service rate class average is greater for some customers (# and # on Slide 0) than it is for these two utilities; however # and # are smaller than the two utilities. BC Hydro also sought feedback on whether it is more appropriate to wait for the F0 COS filing, as it proposed at Workshop, since the potential impacts of creating separate rate classes for FortisBC and New Westminster (such as possible rate rebalancing from F00 onward if appropriate) will be better understood at that time. The following participants submitted written comments on this topic (copies at Appendix C-B): Transmission Service Rate Class Customers/Customer Organizations 0 New Westminster submits that the status quo should be maintained until the F0 COS, at which time the potential impacts of creating separate rate classes for FortisBC and New Westminster can be better understood. New Westminster further comments that given the Rate Rebalancing Amendment, taking steps to change the rate class status of New Westminster at this time adds no particular value. New Westminster also states that there are no benefits associated with creating two new rate classes, each consisting of one customer; the result would be administrative costs and burdens and unnecessary complexity. Finally, New Westminster questions the R/C ratio analysis provided at Workshop ; FortisBC states that any consideration of separate rate class treatment for FortisBC and New Westminster should be deferred to the F0 COS so that Page -

187 Chapter - Rate Class Determination 0 potential impacts can be better understood. FortisBC agrees with New Westminster that given the Rate Rebalancing Amendment, expending resources on this topic at this time is of little value; and AMPC continues to be of the view that New Westminster and FortisBC should be separated from the remainder of the Transmission Service rate class on the basis that these two utilities have lower load factors and higher coincidence factors than the typical Transmission Service customer, and higher costs to serve as shown in Table - above. AMPC states that BC Hydro is unusual in not having a wholesale rate class to serve large municipalities outside its service area. Finally, AMPC echoes Commission staff s point below that there has effectively been recognition of the differences between New Westminster and FortisBC and the remainder of the Transmission Service rate class through the setting of different rates for these two utilities while most of the remainder of the Transmission Service rate is served on RS. Other Participants 0 Neither BCSEA nor BCOAPO take a position on this issue at this time; and Commission staff commented that New Westminster and FortisBC are already effectively segmented from the rest of the Transmission Service rate class given that they take service under RS and RS 0, respectively, and the inability of the Commission to order that New Westminster take service on RS or a stepped rate. Commission staff asked that BC Hydro outline the pros and cons of the potential segmentation. This BC Hydro has done in Table - above... BC Hydro Proposal BC Hydro proposes to address the issue of creating separate rate classes for FortisBC and New Westminster as part of its F0 COS. BC Hydro agrees with New Westminster that the potential impacts of creating separate rate classes for FortisBC and New Westminster can be better understood at the time of the Page -

188 Chapter - Rate Class Determination F0 COS. BC Hydro will provide the individual R/C ratios for New Westminster and FortisBC, its recommended treatment of them and further analysis supporting its position as part of the F0 COS Study.. Irrigation Rate Class BC Hydro has had an Irrigation rate class since at least the COS study. BC Hydro proposes no changes to the existing Irrigation rate class for Module purposes: 0 No segmentation issues with the Irrigation rate class were identified during the 0 RDA stakeholder engagement processes; and Customers in the Irrigation rate class have summer peaking load profiles and no allocation of CP-related costs in the F0 COS study, which differentiates this class from the Residential and General Service rate classes. Refer to Figure - below: Figure - Irrigation Rate Class Peak Profile,000,000,00,000 Residential Commercial Irrigation,000 0,000,000,000,000,00,000 0,000,000,000 Residential & Commercial Hourly kw (kwh),00,000,000,000,00,000,000,000 Note: Irrigation profile is graphed on secondary y-axis (righthand side),000 0,000,000 0,000 Irrigation Hourly kw (kwh) 00,000, April May June July August September October November December January February March April BC Hydro s proposal aligns with the Commission s 00 FBC RDA Decision, which approved continued treatment of FortisBC s irrigation customers as a Page -

189 Chapter - Rate Class Determination 0 0 separate rate class for COS purposes on the basis that FortisBC irrigation and General Service customers have different characteristics with respect to their power supply and infrastructure requirements that cause them to drive costs on FortisBC s system differently. Both ATCO Electric and FortisAlberta, which serve the majority of the rural areas in Alberta, offer a seasonal irrigation rate, as does SaskPower. The Irrigation rate, RS 0, is available to customers with motor loads of watts or more used for irrigation and outdoor sprinkling where electricity will be used primarily during the Irrigation Season, defined as the period between March and October (BC Hydro has the discretion to extent the season to a date not later than November 0). In the 00 RDA Decision, the Commission urged BC Hydro to consider the suitability of RS 0 for municipal and hotel/golf course customers. As part of RDA Module, BC Hydro will review RS 0 customer availability.. Street Lighting As part of Module, BC Hydro proposes to divide the Street Lighting class into two rate classes: BC Hydro-owned Street Lighting and Customer-owned Street Lighting. BC Hydro will examine street lighting rate design as part of RDA Module. Currently BC Hydro has a single Street Lighting rate class for customer-owned and BC Hydro-owned street lights. Depending on who owns and maintains the assets, BC Hydro offers customers different street lighting rates and services as part of a single Street Lighting rate class as shown in Table - below. At page of the 00 FBC RDA Decision. Refer to Price Schedule D; 0-%00%0rate%0schedules.pdf. Refer to Rate ; Refer to Rate E- at 00 RDA Decision, page 0. Page -

190 Chapter - Rate Class Determination Table - Street Lighting Rate Schedules and Ownership Rate Schedule Description Ownership F0 Revenue ($million) RS 0 Overhead Street Lighting BC Hydro owns poles and street lights RS 0 Public Area Ornamental Street Lighting Customer owns poles and street lights RS 0 Street Lighting Service Customer owns street lights BC Hydro owns poles RS 0 RS Traffic Control Equipment Private Outdoor Lighting (Closed) Customer owns poles and all traffic related devices BC Hydro or Customer owns poles BC Hydro owns fixtures Differences in ownership and maintenance of street lighting assets drive variation in the cost of serving street lighting customers. Significant differences in the nature of service to a particular customer are often justification for the creation of separate rate classes. The Commission determined at page 0 of the 00 RDA decision that: Given the difference in connection requirements (cost of fixtures) between the two groups, the significant difference in R/C ratios, and the lack of evidence as to how the cost differences were taken into account in rates design, the Commission Panel requests BC Hydro to separate street lighting into two or more classes and to calculate R/C ratios for each class in its next [Fully Allocated COS] or rate design filing. The draft F0 COS study identified an overall Street Lighting rate class R/C ratio of per cent. This is higher than values reported in past COS studies for three main reasons:. As part of managing its costs BC Hydro replaced its group re-lamping program, which previously changed out all BC Hydro-owned street lights on a five-year Page -

191 Chapter - Rate Class Determination 0 0 cycle, with a spot repair program that replaces individual street lights at end of life. As a result, annual O&M spending is likely to be lower in the short term;. Street lighting is one of the most significant unmetered loads on the BC Hydro system. The class share of system energy sales and demand-related costs is estimated using aggregate billing information and high level load research profiles. Given the unmetered nature of the service, there is more uncertainty surrounding the allocation of energy and demand costs to this class of customers than to other rate classes in the COS study; and. In recent years the rate base for BC Hydro-owned street lights remained relatively constant while revenues have risen primarily because of rate increases. The F0 COS study uses this rate base to assign customer owned lights a proportionate share of capital costs (taxes, financing, depreciation and RoE) related to these distribution assets. Together these factors result in a declining allocation of costs to the Street Lighting rate class in F0 despite consistently rising revenue due to annual rate increases. The net result is a rising R/C ratio. BC Hydro explored this issue in more detail and separately calculated the costs of serving RS 0 and RS lights from the rest of the Street Lighting rate class. This includes a direct allocation of costs associated with the ownership and maintenance of BC Hydro-owned fixtures. BC Hydro has not calculated separate R/C calculations for each of the remaining street lighting rates as the nature of the service is similar between RS 0/RS 0/RS 0 (i.e., customers own and maintain the street lighting fixture assets). The results of this analysis were presented on slide of the Workshop presentation found at Appendix C-B. As shown in Table -, BC Hydro currently estimates R/C ratios of per cent for BC Hydro-owned lighting and 0 per cent for customer-owned street lighting. Short term refers to the five years after implementation. The cost of serving BC Hydro owned street lighting is about $. million dollars. Even a $ million change in O&M costs can cause up to a 0 percentage point swing in the R/C ratio for this group of customers. Page -

192 Chapter - Rate Class Determination Table - Street Lighting R/C Ratios Rate Class R/C Ratios (%) Street Lighting BC Hydro-owned Street Lighting Customer-owned 0 0 Given the significant differences in these R/C ratio estimates, the fact that BC Hydro-owned street lights account for 0 per cent of revenue from the Street Lighting class, and the Commission s 00 RDA request noted above, BC Hydro believes there is a strong basis for creating a separate rate class for BC Hydro-owned street lighting. BC Hydro will examine street lighting rate design as part of RDA Module. BC Hydro notes that it is actively exploring high efficiency Light Emitting Diodes technology through a DSM pilot program, which is expected to run from fall 0 to fall 0, to determine if additional options can be offered to BC Hydro-owned street lighting customers to lower their costs. Page -

193 Chapter Residential Rate Design

194 Chapter - Residential Rate Design Table of Contents. Introduction and Chapter Structure Residential Default Rate BC Hydro s Preferred Rate: Residential Inclining Block Rate Background RIB Rate Background Residential Class Characteristics Residential Inclining Block Rate Evaluation Report Residential Default Rate: Residential Inclining Block Rate and Alternatives Reviewed Flat Rate Three Step Rate BC Hydro Proposal for Residential Default Rate and Stakeholder Engagement Alternative Means of Delivering Residential Inclining Block Rate F0-F0 Pricing Principles Basic Charge Cost Recovery Increase Minimum Charge Step /Step Threshold Residential Dual Fuel Interruptible (E-Plus) Rate BC Hydro s Preferred Residential E-Plus Rate Design Background Options Reviewed BC Hydro Proposal and Stakeholder Engagement Low Income Rate Methodologies for Minister Residential Inclining Block Rate Letter Definition of Low Income Customers Leveraging BC Hydro s Residential End-Use Study to Inform Low Income Analytics Estimated Incidence of Low Income BC Hydro Customer Households Other LICO Definitions considered BC Hydro Residential Rate Modelling for Stakeholder Engagement Defining Factors Leading to High Energy Use... - Page -i

195 Chapter - Residential Rate Design.. Approach to Address Minister Residential Inclining Block Rate Letter BC Hydro Residential Demand Side Management Programs BC Hydro s Existing Residential Demand Side Management Programs BC Hydro s Existing Residential Low Income Demand Side Management Programs... - List of Figures Figure - F0 Residential Accounts... - Figure - Average Residential Class Consumption by Month, F0-F0 (GWh)... - Figure - Total Consumption by Region (GWh)... - Figure - Customer Accounts by Region... - Figure - Total Consumption by Dwelling Type (GWh) Figure - Customer Accounts by Dwelling Type... - Figure - Customer Accounts by Heating Type... - Figure - Proportion of Low Income Customer Accounts... - Figure - Proportion of Low Income, Electrically Heated Customer Accounts... - Figure -0 Total Consumption by Household Size (GWh)... - Figure - Customer Accounts by Household Size... - Figure - Consumption Distribution of Select Residential Customer Segments, 0 th to 0 th Percentile of Annual Consumption in F Figure - Bill Impact vs Annual Consumption for Flat Rate in F Figure - Bill Impact Box-Plot for Flat Rate in F Figure - Comparison of RIB Rate to Three Step A... - Figure - Bill Impact vs Annual Consumption for Moving to the Three Step A RIB Rate in F Figure - Bill Impact Box-Plot for Moving to the Three Step A RIB Rate in F Figure - Requested RIB Rate Pricing Principle (Option ), F0-F Figure - Pricing Principle Option, F0-F Figure -0 Bill Impact vs Annual Consumption for Option of the RIB Rate in F Figure - Cumulative Bill Impact vs Annual Consumption for Option of the RIB Rate in F Page -ii

196 Chapter - Residential Rate Design Figure - Cumulative Bill Impact vs Annual Consumption for Option of the RIB Rate in F Figure - Bill Impact Box-Plot for Moving to the Option of the RIB Rate in F Figure - Cumulative Bill Impact Box-Plot for Moving to the Option of the RIB Rate in F Figure - Median Consumption per Month... - Figure - Step Exposure, all Accounts... - Figure - Step Exposure, Low Income... - Figure - kwh Step/Step Bill Impact Distribution... - Figure - kwh Step/Step Bill Impact Distribution... - Figure -0 DSM Regulation Amendments and ECAP Participants... - Figure - DSM Regulation Amendments and ECAP Participants... - List of Tables Table - Existing RIB Rates (F0)... - Table - Summary of 0 RIB Re-Pricing Directions... - Table - Bill Impact Distribution by Customer Segment for Flat Rate in F Table - Bill Characteristics for Flat Rate in F Table - Three Step Rate Options... - Table - Bill Characteristics Moving to the Three Step A RIB Rate in F Table - RIB Rate Bonbright Assessment Table - Bill Impacts under Pricing Principle Option, F0-F Table - Bill Characteristics for Moving to the Option of the RIB Rate in F Table -0 Bill Characteristics for Moving to the Option of the RIB Rate in F Table - Median Consumption per Month... - Table - Summary of 00 RDA Decision Residential E-Plus Directions Table - Residential E-Plus R/C Ratios... - Table - Low Income Status for the 0 Tax Year by Region... - Table - Low Income Status for the 0 Tax Year by Housing Type... - Table - Existing BC Hydro Residential DSM Programs... - Table - ESK and ECAP Eligibility Household Incomes... - Page -iii

197 Chapter - Residential Rate Design 0. Introduction and Chapter Structure This chapter consists of two parts. Part contains BC Hydro s proposals for the Residential default rate, which is currently the RIB rate (RS 0/RS ), and the Residential E-Plus rate (RS 0). As identified in section.. of the Application, RDA Module will address: () RS /RS (Exempt Residential Service) as it is used in part for farm service; () RS 0/RS (Residential Service Zone II) and RS (Residential Service Zone II (Closed)), which are the Residential Zone II rates (NIA); and () potential Residential rate options. Part is organized as follows: 0 Section. Default Residential rate. Section.. identifies the RIB rate as BC Hydro s preferred default Residential rate. Section.. provides background to the current RIB rate, while section.. summarizes the results of Evaluation of the Residential Inclining Block Rate: F00-F0 (0 RIB Evaluation Report). Section.. sets out the reasons why the RIB rate is BC Hydro s preferred default Residential rate. BC Hydro s proposal is based on the three prior Commission decisions concerning the RIB rate described in section... of the Application; stakeholder input (Workshop and Workshop a/b, the February 0 residential focus group sessions and face-to-face meetings with BCOAPO and COPE ); BC Hydro s Bonbright assessment including the residential rate jurisdictional review and the 0 RIB Evaluation Report; and advice from E. BC Hydro also includes in section.. analysis on and discussion of a flat rate and a three step rate as the two viable alternatives to the RIB rate. In section.., BC Hydro identifies its proposed RIB Pricing Principles (for RRA rate increases to the RIB rate pricing elements for F0-F0); Revision dated June 0; copy at Appendix C-B of the Application. Page -

198 Chapter - Residential Rate Design 0 0 Section. Residential E-Plus rate. As noted in section.. of the Application, BC Hydro proposes to amend RS 0 Special Condition to provide a practical interruptible option on the basis of E-Plus customer and stakeholder input (including from the E-Plus engagement stream, an overview of which is found in section... of the Application with further details in section.), assessment of other BC Hydro interruptible rate provisions, review of prior Commission orders concerning the Residential E-Plus rate and consideration of 0 IRP Recommended Action (to pursue DSM capacity initiatives such as demand response). As described in section.. of the Application, BC Hydro will review the commercial E-Plus rates (RS 0/0/0) as part of RDA Module ; and Section. contains BC Hydro s legal and jurisdictional assessment of low income rates as communicated through the 0 RDA stakeholder engagement processes. BC Hydro defines the phrase low income rates as rates pursuant to which low-income energy customers are charged a different rate for electricity. For purposes of the 0 RDA, low income rates does not include potential Electric Tariff low income terms and conditions discussed in section. of the Application, even though the definition of rate in section of the UCA includes such low income terms and conditions. BC Hydro understands from BCOAPO that through intervener evidence, BCOAPO will be proposing a specific low income rate that could be overlaid onto the default RIB rate. BC Hydro s consideration of such a low income rate will occur through IRs on such evidence, additional legal submissions and other processes as the regulatory review of RDA Module unfolds. Part is comprised of the following: Section. - Information on the methodologies BC Hydro is using to gather information and report on the five questions posed in the Minister RIB Report Letter as requested by the Commission RIB Report Methodology Letter. BC Hydro proposes: Page -

199 Chapter - Residential Rate Design To define low income customers as BC Hydro Residential customers with a before tax annual household income equal to or less than the low-income cut-off established by Statistics Canada (LICO). LICO is used in the 0 RDA engagement modelling and the 0 REUS; To define factors that lead to high energy use such as heating fuel type, dwelling type and region. 0 Section. - Description of BC Hydro s two existing low income DSM program offers given that one of the Minister s questions concerns what options there are for additional DSM low income programs within the current regulatory environment, and to provide context for any examination of low income rates. 0. Residential Default Rate.. BC Hydro s Preferred Rate: Residential Inclining Block Rate BC Hydro s preferred default Residential rate is the RIB rate. In accordance with Direction of Commission Order No. G--, BC Hydro reviewed the RIB rate, as well as four alternative means of delivering the RIB rate (refer to section..). BC Hydro also reviewed five alternatives to the RIB rate (refer to section..) as a result of stakeholder comments at Workshops, and a. As discussed below in section.., the RIB rate encourages relatively higher energy consumers to consume less. The RIB rate is achieving its intended goal of delivering energy conservation through the simple two step rate structure. The RIB is expected to have delivered approximately 0 GWh/year in cumulative conservation over the first ten years of implementation (October 00 through F0)... Background... RIB Rate Background The RIB rate (RS 0/RS ) is the default Residential rate. Of the. million Residential rate class accounts (F0), per cent are served under RS 0 as illustrated in Figure - below. Page -

200 Chapter - Residential Rate Design Figure - F0 Residential Accounts The F0 RIB rate pricing is set out in Table -. Table - Existing RIB Rates (F0) Step energy rate (for first,0 kwh in an average two-month billing period) (cents/kwh) Step energy rate (for all additional consumption) (cents/kwh) Basic charge (cents/day)... As described in section... of the Application, the RIB rate was approved by Commission Order No. G--0 and made effective on October, 00. The RIB rate is a two-step inclining block rate, with the first lower rate called the Step energy rate and the second higher rate called the Step energy rate: 0 The Commission found that the RIB rate is a conservation rate intended to show existing Residential customers the cost of new supply and to offer an incentive to reduce consumption. In the 00 RIB Decision and the 0 RIB Re-Pricing Decision (described in section... of the Application), the Commission Order No. G--0 was issued on August, 00. Page -

201 Chapter - Residential Rate Design 0 Commission determined that BC Hydro s LRMC for new supply is the appropriate referent for the Step energy rate. BC Hydro s energy LRMC range for Distribution service customers is set out in Table - in Chapter. As noted in respect of the capacity LRMC discussion in section... of the Application, BC Hydro sets out both the upper end of the energy LRMC range, and the upper end of the energy LRMC range with a generation capacity value (the Rev UCC), in various figures in this Chapter; and The Step energy rate and basic charge are to be calculated residually to achieve revenue neutrality for the Residential rate class for the relevant period. The basic charge is a fixed daily charge to recover a portion of customer-related costs allocated to the Residential rate class such as billing and metering costs. 0 The Commission established the Step energy rate/step energy rate threshold at,0 kwh per two-month billing period (referred to as the Step /Step threshold), being more or less 0 per cent of the median consumption of BC Hydro s Residential customers of about 0 kwh per month. 0 In support of this threshold the Commission cited RS which sets individual thresholds at 0 per cent of each customer s CBL. As noted in section.. of the Application, the current RIB rate pricing principles expire on March, 0. In addition, the Commission Order No. G-- contains directions relevant to or to be addressed as part of the 0 RDA, summarized in Table RIB Decision, supra, note 0 in Chapter, pages 0 to 0. Page -

202 Chapter - Residential Rate Design Table - Summary of 0 RIB Re-Pricing Directions Direction BC Hydro is directed to file a report with the Commission, with copies to all interveners, concerning its decision with regard to the RIB control group re-establishment on or before the autumn of 0 BC Hydro is relieved from certain elements of Directive of Order No. G-- and shall file a rate design application in F0 that includes the outstanding information required by Directive of Order No. G--: a. A revisit of the setting of the Step /Step threshold; b. Evidence that the directives on page 0 of the 00 RIB Decision: interaction of the basic charge and the RIB rate structure, as well as minimum charge and the cost of remaining attached to the system have been addressed; and c. A recommendation for a pricing principle to apply beyond F0. Status Completed On October, 0 BC Hydro reported to the Commission by way of letter on its evaluation of RIB control group re-establishment. A copy of this letter is found at Attachment to the Workshop a/b consideration memo at Appendix C-B to the Application. COPE expressed an interest in the RIB control group issue. At the June, 0 meeting noted in section... of the Application, BC Hydro advised COPE of the October, 0 letter findings as follows. BC Hydro examined whether New Westminster, with a flat residential rate, could be an effective control group. New Westminster s climate and residential dwelling mix are different than those of many other regions in BC Hydro s service area (e.g., about 0 per cent of BC Hydro s residential accounts are SFDs versus per cent in New Westminster). There are limitations in the New Westminster electricity billing data (e.g., limited tracking of housing type, no tracking of primary heating fuel type). BC Hydro was unable to obtain a reliable estimate of price elasticity of demand for New Westminster s flat rate. BC Hydro provided COPE with a copy of the October, 0 letter at this meeting (found at Appendix C-D). Direction a, b and c are addressed in section..: Section...: BC Hydro s preferred pricing principle for F0-F0 is to continue with the Order No. G-- pricing principle of uniformly increasing the Step energy, the Step energy rate and the basic charge by the amount of the approved RRA rate increases effective April, 0, 0 and 0; Sections.../...: BC Hydro examined the interaction of the basic charge with the RIB rate structure, and rejects an increase in the basic charge recovery of customer-related costs. BC Hydro also considered whether a minimum charge should be implemented, separate from the basic charge, to reflect the cost of remaining attached to the system during periods of very low consumption or dormancy. BC Hydro has decided to not pursue a separate minimum charge; Section...: BC Hydro modelled a range of both increases and decreases to the Step /Step threshold. BC Hydro sees no compelling reason to change the Step /Step threshold. Page -

203 Chapter - Residential Rate Design... Residential Class Characteristics The Residential class served under the RIB rate consists of about. million accounts and consumed, GWh in F0. The following customer characteristics are compiled from a combination of the results of the F0 REUS and billing data up to F0, which is the most recent data available at the time of the filing of the Application. The key issues informed by Residential customer characteristics are: 0 Aggregate conservation induced by the RIB rate; Customer bill impact analysis; and Minister RIB Report Letter question (impacts to BC Hydro low income customers of the RIB rate relative to other Residential rate design alternatives) and question (identify factors that drive higher than average annual electricity consumption). Consumption Distribution by Month The average Residential rate class consumption by month over the period between F0-F0 is illustrated in Figure - below. Generally, consumption is highest during the winter months (November to February), and lowest during the summer months due to higher lighting and heating demand in the winter. Page -

204 Chapter - Residential Rate Design Figure - Average Residential Class Consumption by Month, F0-F0 (GWh) Note: Percentages indicate the average proportion of annual consumption for each month Regional distribution The regional distribution of consumption and accounts are illustrated in Figure - and Figure -. The Lower Mainland has the majority of Residential accounts and about half of the total Residential rate class consumption. This is followed by Vancouver Island, Southern Interior and Northern Interior. Page -

205 Chapter - Residential Rate Design Figure - Total Consumption by Region (GWh) Figure - Customer Accounts by Region Page -

206 Chapter - Residential Rate Design 0 Dwelling Type The distribution of consumption and accounts by dwelling type are illustrated in Figure - and Figure - below. SFDs make up about half of the customer accounts and have the majority of the total class consumption. This is followed by apartments/condominiums. The consumption per account is generally highest for SFDs with a median consumption of about,00 kwh/year and a median F0 annual electricity bill of about $00. In comparison, apartments and condominiums generally have the lowest consumption per account with a median consumption of about,00 kwh/year and a median F0 annual bill of about $0. Figure - Total Consumption by Dwelling Type (GWh) Page -0

207 Chapter - Residential Rate Design Figure - Customer Accounts by Dwelling Type Primary space heating source Figure - shows that about 00,00 ( per cent) of the Residential accounts have electric heat as the primary source of heating in BC Hydro s service area. The consumption per account is generally higher for electric heating than non-electric, with a median consumption of about, kwh/year and a median F0 annual bill of about $0. In comparison, accounts with non-electric primary heating sources have a median consumption of about,0 kwh/year and an F0 annual bill of about $0. Page -

208 Chapter - Residential Rate Design Figure - Customer Accounts by Heating Type Low Income Figure - shows that about, (0 per cent) of the Residential accounts are indicated as low income using Statistics Canada s LICO, and Figure - shows that about half of that,,0 ( per cent), have electric heat as the primary heating source. (Refer to section.. below for information concerning the definition of low income customers): 0 The median consumption of low income accounts is about, kwh/year and a median F0 annual bill of about $; and In comparison, low income accounts with electric heat as the primary heating source have a median consumption of about, kwh/year and a median annual bill of about $0 in F0. This lower median consumption is likely attributable to the higher proportion of apartments in electrically heated dwellings in the low income segment. (BC Hydro examined the proportion of low income, electrically heated accounts to respond to the Minister RIB Report Letter questions). Page -

209 Chapter - Residential Rate Design Figure - Proportion of Low Income Customer Accounts Figure - Proportion of Low Income, Electrically Heated Customer Accounts Page -

210 Chapter - Residential Rate Design As seen in Figure - at the end of this section, the low income segment has a slightly lower distribution, mostly due to the higher proportion of apartments/condominiums in that segment. Household Size The household size composition of the residential class is illustrated in Figure -0 and Figure -. The majority of households are composed of one or two people. Figure -0 Total Consumption by Household Size (GWh) Page -

211 Chapter - Residential Rate Design Figure - Customer Accounts by Household Size 0 Consumption distribution of select Residential customer segments The consumption distribution of the Residential class is depicted in Figure -, where the bars show the consumption range of typical Residential customers (the 0 th to 0 th percentile of annual consumption). The distribution of consumption is quite similar for most segments, with the exception of apartments/condominiums, which is substantially lower. Taking all accounts into consideration, the range of the typical Residential customers is between,000 and,000 kwh/year. The low income segment has a slightly tighter consumption distribution, mostly due to the higher proportion of apartments/condominiums in that segment. The difference in the distribution between low income and low income with electric heating is very small. Page -

212 Chapter - Residential Rate Design Figure - Consumption Distribution of Select Residential Customer Segments, 0 th to 0 th Percentile of Annual Consumption in F0,000 F0 0th - 0th percentile kwh/year,000,000,000 0,000,000,000,000,000 - All Vancouver Island Apartments /Condos Electric Space Heating Low income Low income x Elec Heating 0 Note: Above chart based on 0 REUS outcomes and F0 billing data.. 0 Residential Inclining Block Rate Evaluation Report The 0 RIB Evaluation Report evaluated the impacts and customer response to the RIB rate, net of DSM programs and natural conservation, over the period F00 through F0. A copy of the 0 RIB Evaluation Report is found at Appendix C-B of the Application. The 0 RIB Evaluation Report was submitted as Appendix C to BC Hydro s 0 RIB Rate Re-Pricing Application; the report was the subject of a number of Commission staff IRs in that proceeding. The 0 RIB Evaluation Report concluded that the RIB rate appears to be achieving its overall objective of encouraging conservation through Residential customer response to higher marginal prices at the Step energy rate particularly among customers with the highest consumption. Specific findings germane to the Natural conservation is conservation induced by RRA rate increases absent any rate structure changes. Page -

213 Chapter - Residential Rate Design 0 RDA stakeholder engagement process and RIB rate analysis are summarized below. Estimated Price Elasticity The estimated range of Step price elasticity (-0.0 to -0.) encompasses the Step elasticity assumption in the BC Hydro 00 RIB Application of -0.0 for forecasting RIB rate impacts; 0 Price elasticity for BC Hydro s small Residential customers with only Step consumption was not able to be measured with adequate precision due to the limited variation in real prices over the time period covered by the evaluation; and The class average elasticity due to RRA rate increases under a flat rate was not able to be estimated using empirical data. The evaluation used the assumption of -0.0 as the class average price elasticity to determine the natural conservation baseline. Differences in Price Elasticity by Consumption Level The 0 RIB Evaluation Report found that large consumers have higher elasticities than smaller consumers. Refer to the following 0 RIB Evaluation Report findings: 0 Large residential users consuming more than,00 kwh bi-monthly show a substantially higher than average response to higher prices. The 0 RIB Evaluation Report indicates that the customer segment above,00 kwh of bi-monthly consumption has an estimated price elasticity of -0. to -0. (RIB Evaluation Report, pages vi, 0); Price elasticity is generally larger for customer segments with higher consumption. As discussed in section... above, customers living in single family detached homes generally have higher consumption than those living in other dwelling types. The 0 RIB Evaluation Report finds that customers living in single family detached houses demonstrate higher price Page -

214 Chapter - Residential Rate Design 0 responsiveness than customers living in town houses, apartments or mobile homes (0 RIB Evaluation Report, pages vi, ). Section... also shows that customers with electric heat tend to have higher consumption than those that use other heating fuels. Price elasticity is higher among households with electric heat than those with non-electric heat (0 RIB Evaluation Report, pages vi, 0); and Higher consumption is correlated with both higher awareness of the RIB rate and higher price elasticity; however, no firm conclusions can be drawn about how RIB awareness is related to customer price response (RIB Evaluation Report, pages vii, ). These results are all consistent with the RIB rate design assumptions that customers with a higher level of consumption tend to have a higher responsiveness to price. Customer Response, Awareness, and Understanding Using customer survey and billing data, the 0 RIB Evaluation Report analyzed customer awareness and understanding of the RIB rate. The key findings are summarized below: 0 The usage distribution of the sample of customers that were surveyed very closely reflects the actual usage distribution of all RIB accounts; A total of 0 per cent of Residential customers appear to be aware of the RIB rate as of February 0; and The total amount of the household electricity bill serves as the greatest incentive to manage electricity consumption among residential customers, followed by electricity prices. The 0 RIB Evaluation Report also contains three recommendations for future work. The recommendations are outlined below, along with status updates: Page -

215 Chapter - Residential Rate Design 0 0. Continue to attempt to estimate Step price elasticity and the class average price elasticity: Future evaluations will likely be improved by accumulation of empirical data and price variation over time and the exploration of alternative methods to estimate the class average elasticity. The next RIB evaluation is slated to occur sometime in the F0-F00 period, and depends on the Commission s decision concerning the default Residential rate and if the RIB rate is selected, the various RIB rate-related design issues discussed in section.. below;. Future RIB rate evaluations may benefit from complementary econometric analysis of a select sample of customers. This would require additional data collection on changes (stock turnover) in major household energy end-uses (e.g., appliance replacements, heating system upgrades), changes in economic and demographic circumstances (e.g., occupancy) and participation in DSM programs to attempt to further isolate the effects of electricity prices on consumption. This work may form part of the next RIB evaluation; and. Consider ways to increase awareness of the RIB rate, particularly targeted at customer segments that have shown the largest response to price. The evaluation results indicate there are correlations between RIB rate awareness and energy conservation behaviours. While causation is unclear, this could mean that increasing RIB rate awareness will lead to increases in energy conservation behaviours and corresponding energy savings. At Workshop a, BC Hydro responded to a BCSEA inquiry as to whether the 0 per cent of Residential customer awareness of the RIB rate could be increased. BC Hydro responded that it may be possible to further increase customer awareness but this would come at a cost. Awareness efforts have continued since the October 00 initial launch by including RIB rate messaging in other communications where appropriate (e.g., Power Smart residential DSM program materials, correspondence with billing notices). However, a Page -

216 Chapter - Residential Rate Design 0 broader marketing campaign would be necessary to ensure that RIB-specific messaging was promoted... Residential Default Rate: Residential Inclining Block Rate and Alternatives Reviewed BC Hydro used the 00 RIB Decision for the purpose of advancing alternatives to the RIB rate for modelling and stakeholder consideration at Workshop. This resulted in four alternatives: () flat rate; () three step rate; () customer specific baseline rate; and () seasonal rate design consisting of a higher winter Step /Step threshold to potentially moderate bill impacts to electric space heating customers (seasonal rate alternative ). BC Hydro used its Residential rate jurisdictional review outlined in section... of the Application to identify another seasonal rate (seasonal rate alternative ) with a higher rate targeted to the four month winter season of November through February (and a lower rate in the other months). Participants generally agreed that BC Hydro should not continue to consider the customer specific baseline rate, seasonal rate or seasonal rate : 0 Customer specific baseline rate would be impractical and would impose significant implementation challenges due to the large scale (about. million Residential accounts), which is the overriding reason that no North American utility offers individual residential customer baseline rates; Seasonal rate consists of designs that would increase the Step /Step threshold in the winter months. This design would be misaligned with BC Hydro s peak period cost causation and would result in some customers facing lower effective rates in winter; and The summary of the initial RIB rate engagement plan submitted during the RIB rate proceeding is attached to the Workshop a summary notes, found at Attachment to the Workshop a/b consideration memo at Appendix C-B. All activities were performed with the exception of direct mail letters to high consumption customers. As shown, the communication efforts were substantial. Refer to BC Hydro s response to question, Part of the Workshop a summary notes (found at Attachment to the Workshop a/b consideration). Page -0

217 Chapter - Residential Rate Design 0 Seasonal rate consists of designs where Residential customers pay a higher rate for electricity during winter months and a lower rate for electricity during non-winter months compared to the existing RIB rate. This would be a blunt instrument to achieve any intended winter peak savings, and would impose higher bill impacts on customers who already claim to have high bill impacts in winter (such as electric heating customers). Newfoundland Power is the only Canadian electric utility surveyed to offer a voluntary residential seasonal rate in this form. Newfoundland Power states that residential customers most likely NOT to benefit from the voluntary seasonal rate are those using more electricity in winter than the non-winter months. Approximately per cent of Newfoundland Power s residential customers have opted for the seasonal rate. A voluntary seasonal rate would confer a benefit to some participating customers that do not change their consumption behaviour and would yield no reliable capacity. 0 As a result, BC Hydro did not carry forward these three alternatives for additional analysis. Refer to sections. and. of the Workshop consideration memo at Appendix C-A for additional detail. While no Workshop participant other than CEC favoured BC Hydro carrying forward a flat rate for additional analysis, COPE expressed interest in a flat rate at Workshop a and at the June, 0 meeting. Accordingly, BC Hydro put forward additional analysis and its position concerning a flat rate in the Workshop a/b consideration memo and at Workshop. Refer to section... below. BCOAPO and COPE asked BC Hydro to carry forward the three step rate modelled and discussed at Workshop, and BCOAPO requested that BC Hydro model two other versions of a three step rate. Refer to section... below. Page -

218 Chapter - Residential Rate Design Flat Rate BC Hydro modelled a revenue neutral flat energy rate of 0.0 cents/kwh (F0). The level of the flat rate is coincidently within the energy LRMC range for that year [lower end. cents/kwh; upper end. cents/kwh]; it was not deliberately set to be within the 0 IRP energy LRMC range. The basic charge would be the RIB rate basic charge. No stakeholder supports a flat rate, although as discussed in section... COPE favours a RIB rate pricing principle that would not apply any RRA rate increases to the Step rate for the reason, in part, that this would transition the RIB rate to a flat energy rate structure over time. BCOAPO advised BC Hydro at Workshop and in its Workshop written comments that it opposes a flat rate at this time on the basis of bill impacts to low electricity users including low income customers, and a likely loss of conservation. BC Hydro agrees that the flat rate yields the two negative impacts identified by BCOAPO. The essential trade-off between the RIB rate and a flat rate is greater economic efficiency on the one hand, and loss of conservation and bill impacts on the other hand:. The flat rate as modelled by BC Hydro, which would be within the energy LRMC range, is arguably more economically efficient given all Residential customers would see a LRMC price signal, although there is likely to be a loss of conservation as compared to the RIB rate for the reasons set out above in section.. concerning the 0 RIB Evaluation Report (e.g., large consumers have higher elasticities than smaller consumers) and in section... below concerning additional work BC Hydro undertook to respond to COPE s 0 RIB Evaluation Report-related comments made at the June, 0 meeting (this work reinforced the 0 RIB Evaluation Report s finding that large consumers have higher elasticities than smaller consumers); Page -

219 Chapter - Residential Rate Design 0. As for conservation savings, a flat rate will likely result in a reduction in conservation because most customers are facing a reduction in their marginal price relative to the RIB rate;. Bill impacts are part of the Bonbright customer understanding and acceptance criterion. BC Hydro s primary concern with a Residential flat rate is that it cannot be achieved without imposing significant bill impacts on most customers. As discussed at Workshop a, under a flat rate bills would go up for most customers, including low income customers, while bills would go down for larger consuming residential customers. Figure - and Figure -, and Table - and Table -, illustrate the estimated bill impact distribution for flattening of the RIB rate in F0 (relative to BC Hydro s RIB Pricing Principles): 0 (a) (b) (c) (d) Figure - shows that high bill impacts would be experienced by most customers, with the maximum bill impact being experienced by customers near the class median. Most customers are worse-off under the flat rate and experience bill impacts above the RRA rate increase (Figure -). Furthermore, 0 per cent and per cent of customers would experience bill impacts greater than 0 per cent and 0 per cent, respectively (Table -); Table - shows that only per cent of low income customers would be better off under a flat rate as compared to the RIB rate; BC Hydro s simulations show that about per cent of customers are better off under the flat rate, composed of the largest customers who benefit from a substantive reduction in the RIB Step rate where a majority of their consumption is billed. For example, about a quarter ( per cent) of electric space heating customers would be better off on the flat rate; For typical customers consuming at about the median, the nominal bill increase from the status quo RIB rate is about $00 per year. A similar Page -

220 Chapter - Residential Rate Design bill increase is also estimated for the median low income customer and the median low income customers with electric heat (Table -). Figure - Bill Impact vs Annual Consumption for Flat Rate in F0 Note: The chart above is zoomed to show the majority of customers. Color bars indicate the annual consumption range for the middle 0 per cent of each customer segment. Figure - Bill Impact Box-Plot for Flat Rate in F0 0 Note: Box indicates middle 0 per cent of segment by annual bill impact; blue square indicates median. LI refers to Low Income segment and Apt indicates apartments. Page -

221 Chapter - Residential Rate Design Table - Bill Impact Distribution by Customer Segment for Flat Rate in F0 Account Segments Proportion Higher than 0% BI (%) Proportion Higher 0% BI (%) All 0 Low Income 0 Apartment Electric Heat Low Income & Electric Heat Table - Bill Characteristics for Flat Rate in F0 Account Segments Proportion Better Off than SQ (%) Median Bill of Segment ($) All Low Income Apartment 0 Electric Heat Low Income & Electric Heat 0 Median Bill Difference from SQ ($)... Three Step Rate As noted above, BC Hydro modelled and assessed three different options for a three step rate as described in Table -. Page -

222 Chapter - Residential Rate Design Table - Three Step A Developed by BC Hydro for Workshop ; carried forward to Workshop a; carried forward to 0 RDA Three Step B Modelled at request of BCOAPO; carried forward to Workshop a; not carried forward to 0 RDA Three Step C Modelled at request of BCOAPO; carried forward to Workshop a; not carried forward to 0 RDA Three Step Rate Options Step /Step threshold is RIB rate Step /Step threshold; Step rate is the RIB Step energy rate; Step is set within the energy LRMC range; and the Step /Step threshold and Step rate are derived refer to Appendix H-A for additional detail. For F0 the Step /Step derived threshold is about kwh per month. Step /Step threshold = 0 kwh per month; Step /Step threshold = kwh per month; the Step rate is set within the energy LRMC range; Step rate is 0 per cent higher than the upper end of the energy LRMC range. The Step rate is derived. Step /Step threshold = 0 kwh per month; the Step /Step threshold is 000 kwh per month; Step rate is cents/kwh; and the Step rate is equal to the UEC for greenfield IPPs + the LRMC for capacity + T&D losses resulting in a Step energy rate of about cents/kwh. The Step rate is derived. 0 At Workshop b, BC Hydro discussed strengths and weaknesses of each of these three step rates. There was no material change in expected energy conservation savings as compared to the RIB rate (ranging from about +0 GWh in F0 from Three Step A to about -0 GWh in F0 from Three Step B). Three Step B and C had the highest bill impacts to typical Residential customers in the range of median consumption. Most participants agreed that only Three Step A should be advanced for the 0 RDA, and that Three Step A was inferior to the RIB rate. For example, CEC remarks that directionally a three-step rate would complicate rate design. FNEMC acknowledges that the modeling results of the three step rates performed worse than the RIB rate when compared against the Bonbright criteria. BCOAPO noted in its Workshop a written comments that attempts to introduce some form of benefit to low income customers as part of a universal three part rate were not successful. Figure - compares the RIB rate to Three Step A in F0 assuming BC Hydro s preferred pricing principle for the RIB rate. Refer to Workshop a presentation slides 0,,, and to at Appendix C-B. Refer to Attachment to the Workshop a/b consideration memo. Page -

223 Chapter - Residential Rate Design Figure - Comparison of RIB Rate to Three Step A... c/kwh 0.. Step Step Energy LRMC (Upper Limit) Energy LRMC (Upper Limit) + UCC of Revelstoke Unit. 0 SQ S The bill impacts for Three Step A are set out in the Figure - and Figure -, and Table - below. Figure - Bill Impact vs Annual Consumption for Moving to the Three Step A RIB Rate in F0 Note: The chart above is zoomed to show the majority of customers. Color bars indicate the annual consumption range for the middle 0 per cent of each customer segment. Page -

224 Chapter - Residential Rate Design Figure - Bill Impact Box-Plot for Moving to the Three Step A RIB Rate in F0 Note: Box indicates middle 0 per cent of segment by annual bill impact; blue square indicates median. LI refers to Low Income segment and Apt indicates apartments. Table - Bill Characteristics Moving to the Three Step A RIB Rate in F0 Account Segments Proportion Better Off than SQ (%) Median Bill of Segment ($) Median Bill Difference from SQ ($) All () Low Income (0) Apartment (0) Electric Heat () Low Income & Electric Heat 0 (0) 0 The bill impacts of Three Step A are generally low as compared to the RIB rate. Most of the typical customers experience bill impacts that are at about the RRA rate increase (Figure - and Figure -), although bill impacts generally increase with consumption up to a maximum of 0 per cent as per the constraint in the pricing principle. In terms of bill differences as compared to the status quo RIB rate, about half of the accounts are better off under the Three Step A; however, the nominal amount is small. For the typical account that consumes at around the median, the reduction in the annual bill is about $, or $0. per month. The nominal impact on each segment shown also shares the same trend (Table -). For instance, there is Page -

225 Chapter - Residential Rate Design 0 0 no impact on the typical low income accounts that consumes at the low income segment s median. As noted above, BC Hydro does not anticipate much incremental conservation produced by adopting Three Step A in terms of expected energy conservation savings. There would also be a moderate decrease in customer understanding and acceptance as compared to the RIB rate which would probably dampen Three Step A s intended conservation signals. In addition, only one Canadian jurisdiction has a three-step rate, YECL, with energy rates applicable to consumption up to,000 kwh; between,00 to,00 kwh; and in excess of,00 kwh. BC Hydro also advised Workshop a/b participants of the outcome of the California Public Utilities Commission s (CPUC) June, 0 residential rate reform plan, which will see the current four step residential rates of the three large investor owned utilities - Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric - reduced to two steps. As a possible three step rate variation, at Workshop a BCOAPO and COPE suggested a charge on large energy consumers as a means of funding a low income rate. This raises the legal issue identified in section. below.... BC Hydro Proposal for Residential Default Rate and Stakeholder Engagement At Workshop a BC Hydro presented its Bonbright assessment of the RIB rate, which is reproduced in Table - below with presentation modifications. Stakeholders generally agree with BC Hydro s assessment and support the RIB rate compared to the alternatives. A few stakeholders raised concerns about impacts on low income customers and certainty of achieved conservation. YECL Rate Schedules 0, 0, 0 and 0; refer to section. Refer to slide of the Workshop a presentation at Appendix C-B. Page -

226 Chapter - Residential Rate Design Table - RIB Rate Bonbright Assessment Bonbright Criteria Performance Remarks Economic Efficiency - Price signals that encourage efficient use and discourage inefficient growth Fairness - Fair apportionment of costs among customers; Avoid undue discrimination Practicality Customer understanding and acceptance, practical and cost-effective to implement; Freedom from controversies as to proper interpretation Stability Recovery of the revenue requirement; revenue stability; rate stability Good Good Good Good The RIB rate is an economically efficient rate that exposes a majority of Residential customers to a price signal set in reference to the energy LRMC; The Step rate exceeds the upper end of the energy LRMC range The Step /Step threshold is generally reflective of typical Residential customer consumption on an on-going, stable basis; The basic charge recovers about % of customer-related costs, which is in line with other jurisdictions The simple two step RIB rate design sends a clear price signal to consumers that both higher consumption costs more and conservation reduces your bill; As demonstrated in the 0 RIB Evaluation Report, 0% of Residential customers are aware of the RIB rate and % of those customers believe its serves as an incentive to manage electricity consumption (RIB Evaluation Report, Table.); Many Canadian and U.S. jurisdictions have two-step inclining block rates for residential customers The RIB rate has been in place since October 00; The RIB rate is effective in collecting the revenue requirement BCSEA is of the view that the existing RIB rate structure is the best option at the present time in terms of both conservation and ratepayer interests. BCSEA concludes that the RIB rate meets the Bonbright criteria and has the practical benefit Page -0

227 Chapter - Residential Rate Design 0 of being relatively well known and understood. FNEMC, BC Non-Profit Housing Association (BCNPHA) and CEC identified the RIB rate as the preferred rate design for the Residential sector. Only one stakeholder expressed a preference for an alternative to the RIB rate. As part of its Workshop a feedback, COPE advanced that a flat rate is arguably more consistent with Bonbright than the RIB rate. BC Hydro does not agree with this statement; the trade-off associated with a flat rate is described above in section... In its Workshop feedback COPE stated that it supports the RIB rate if COPE s preferred pricing principle for F0-F0 is adopted (Option described in section... below). A number of stakeholders asked how the RIB rate performs as compared to the two viable alternatives in terms of bill impacts to low income customers: 0 Three Step A results in per cent of low income customers being better off than under the existing RIB rate in terms of bill impacts; and In the 00 RIB Decision, the Commission found that the vast majority of BC Hydro s low-income customers will be better off under a simple two-step inclining block structure that is revenue neutral for the residential customer class then under the [then current] flat rate. 0 BC Hydro agrees with this finding, and believes it continues to apply as compared to the flat rate modelled in section... above. Table - highlights that only nine per cent of low income customers would be better on a flat rate as compared to the existing RIB rate design. Comparing the annual consumption distribution between the full Residential customer population and the low income segment, the low income segment is slightly lower overall, as indicated by the lower BCNPHA members are primarily non-profit housing providers RIB Decision, page ; refer to note in Chapter of the Application. Refer also to BC Hydro s response to BCOAPO IR.., Exhibit B- in the 00 RIB Rate proceeding, which sets out BC Hydro s conclusion that per cent of low income customers would be better off under the 00 RIB rate proposal as compared to the then existing Residential flat rate; 00_0_%0BCH%0IRES BCUC_INT.pd f. Page -

228 Chapter - Residential Rate Design 0 median consumption and the distribution of typical customers of the segment as shown in Figure - in section... This is likely due to the higher share of apartment dwellers for low income households compared to the general Residential customer population. As a result, a higher proportion of low income customers have a greater share of annual consumption in Step of the RIB rate. This is illustrated in the figures in the Workshop slides. COPE expressed concern at the June, 0 meeting that the RIB rate s total impact on conservation is still unknown due to uncertainty surrounding the Step price elasticity. BC Hydro noted that the lack of Step variation during the period of time examined as part of the 0 RIB Evaluation Report made estimating the price elasticity of smaller customers challenging, and agreed with COPE that this does not necessarily mean that small customers are price-insensitive. It means that the limited data variations did not allow for precise detection of these customers price responsiveness. BC Hydro maintained the initial assumption of -0.0 for the price elasticity of low use customers, which is consistent with the default elasticity assumption BC Hydro uses for the entire Residential rate class when BC Hydro forecasts Residential class sales. In BC Hydro s view it s unlikely that the actual elasticity of Step can be as large as the elasticity for Step : 0 As noted in section.., the 0 RIB Evaluation Report found that large consumers have higher elasticities than smaller consumers; and Other studies support the 0 RIB Evaluation Report finding. Refer to E s literature review for purposes of informing the issue of the relative elasticities of small and large BC Hydro Residential customers at Appendix D- to the Application. E states that there is evidence in the fifteen studies and regulatory filings reviewed that large residential customers are more responsive to price than small customers. Refer, for example, slides to and 0 of the Workshop presentation at Appendix C-A. As noted in the article of Michael Li, Ren Orans, Jenya Kahn-Lang and C.K Woo, Are Residential Customers Price-Responsive to an Inclining Block Rate? Evidence from, British Columbia, Electricity Journal, January/February 0, Vol., issue, pages and (footnote ). Page -

229 Chapter - Residential Rate Design Even if the elasticities of small and large customers were equal, conventional economic theory shows that the RIB rate would induce conservation, as the RIB rate increases the average of the marginal rates faced by customers... Alternative Means of Delivering Residential Inclining Block Rate Alternative means refers to the different ways the RIB rate can be delivered (i.e., the method for determining the price levels for the various rate design components). BC Hydro used Direction of Commission Order No. G-- (described above in Table -) and stakeholder engagement to identify and examine four different alternative means of delivering the RIB rate: 0 Section... Two pricing principle options for F0-F0. As noted in section.. of the Application, pricing principle refers to how the RRA rate increases are applied to each of the RIB rate s pricing elements (Step energy rate; Step energy rate; and basic charge); Section... Whether to adjust the level of the RIB rate basic charge cost recovery of customer-related costs; Section... Whether to implement a separate minimum charge to reflect the cost of customers remaining connected to the system during periods of very low consumption or dormancy; and Section... Whether to adjust the existing Step /Step threshold F0-F0 Pricing Principles As noted in section.. of the Application, BC Hydro proposes pricing principles for the RIB rate for each year, F0 to F0, whereby each pricing element of the RIB rate will increase by the RRA rate increases ordered by the Commission in regard to BC Hydro s revenue requirements effective April, 0, 0 and 0. At Workshops and b, BC Hydro reviewed and sought feedback on two pricing options for applying RRA rate increases to the RIB rate. Page -

230 Chapter - Residential Rate Design Option (BC Hydro s proposal) would continue the Commission Order No. G-- approach of applying RRA rate increases equally to all three RIB rate pricing elements. The effect of Option would be to maintain the current differential in percentage terms between the Step and Step energy rates, and by extension, a Step energy rate that currently exceeds the upper range of BC Hydro s LRMC. Since all components of the rates go up by the RRA rate while the DARR is forecasted to hold steady at per cent for F0 to F0, the bill impacts for all customers is at the RRA rate increase (Direction No. rate caps) in Table -, as follows: 0 Table - Bill Impacts under Pricing Principle Option, F0-F0 F0 (%) F0 (%). F0 (%) BC Hydro s requested RIB rate pricing principle for F0-F0 (Option ) is depicted in Figure - below. Figure - Requested RIB Rate Pricing Principle (Option ), F0-F0.... c/kwh Step Step Energy LRMC (Upper Limit) Energy LRMC (Upper Limit) + UCC of Revelstoke Unit. 0 F F F F Page -

231 Chapter - Residential Rate Design Option would apply the rate increases to the Step energy rate and basic charge only while holding the Step energy rate at its current level, which results in narrowing the differential between the Step and Step energy rates over time. Under Option, the Step energy rate would be approximately equal to the energy LRMC upper limit by F0, with a forecast loss of conservation in comparison to Option. Higher bill impacts for most customers, including low income customers, would also be expected under Option. Option is depicted in Figure -. Figure - Pricing Principle Option, F0-F0.... c/kwh Step Step Energy LRMC (Upper Limit) Energy LRMC (Upper Limit) + UCC of Revelstoke Unit. 0 F F F F 0 Bill Impact effects Figure -0 to Figure - below illustrate the estimated bill impact distribution for Option from F0 to F0, which increases in magnitude over time (Figure -0, Figure -, Figure -) and eventually achieves a bill impact distribution pattern that takes on a similar shape as the flat rate. Bill impacts above the RRA rate increases are experienced by the majority of customers starting in F0 (Figure -), with the highest bill impacts experienced by customers who consume near the class median. For these customers, the highest impact aggregates over time, starting with per cent in F0 relative to a RRA rate increase of per cent, and ending with a cumulative bill impact of per cent relative to a cumulative RRA rate increase of 0. per cent in F0 (Figure -). The largest customers Page -

232 Chapter - Residential Rate Design experience lower bills relative to Option due to the majority of their consumption being in Step, which holds constant rather than increasing by RRA rate increases between F0 and F0. Most customers are worse-off under Option across all segments examined, and that proportion increases over time (Table - and Table -0). For typical customers consuming at about the median, the nominal bill difference from Option is an increase of about $ per year for F0 and that difference grows to an increase of $ for F0. This substantive increase is expected across all segments examined, including low income. 0 Figure -0 Bill Impact vs Annual Consumption for Option of the RIB Rate in F0 Note: The chart above is zoomed to show the majority of customers. Color bars indicate the annual consumption range for the middle 0 per cent of each customer segment. Page -

233 Chapter - Residential Rate Design Figure - Cumulative Bill Impact vs Annual Consumption for Option of the RIB Rate in F0 Note: The chart above is zoomed to show the majority of customers. Color bars indicate the annual consumption range for the middle 0 per cent of each customer segment. Figure - Cumulative Bill Impact vs Annual Consumption for Option of the RIB Rate in F0 0 Note: The chart above is zoomed to show the majority of customers. Color bars indicate the annual consumption range for the middle 0 per cent of each customer segment. Page -

234 Chapter - Residential Rate Design Figure - Bill Impact Box-Plot for Moving to the Option of the RIB Rate in F0 Note: Box indicates middle 0 per cent of segment by annual bill impact; blue square indicates median. LI refers to Low Income segment and Apt indicates apartments. Table - Bill Characteristics for Moving to the Option of the RIB Rate in F0 Account Segments Proportion Better Off than SQ (%) Median Bill of Segment ($) Median Bill Difference from SQ ($) All Low Income 0 Apartment 0 Electric Heat 0 LI & Electric Heat 0 Page -

235 Chapter - Residential Rate Design Figure - Cumulative Bill Impact Box-Plot for Moving to the Option of the RIB Rate in F0 % 0% % 0% % 0% -% % % % % % 0.%.0%.0% 0.%.% All LI Apt Elec. Heat LI & Elec. Heat Cumulative RRA Note: Box indicates middle 0 per cent of segment by annual bill impact; blue square indicates median. LI refers to Low Income segment and Apt indicates apartments. Table -0 Bill Characteristics for Moving to the Option of the RIB Rate in F0 Account Segments Proportion Better Off than SQ (%) Median Bill of Segment ($) Median Bill Difference from SQ ($) All Low Income Apartment Electric Heat LI & Electric Heat 0 All Workshop b participants commenting on this topic support Option except COPE. BCSEA supports Option on the basis of customer understanding and acceptance (Option is easily understood and easily communicated). BCOAPO opposes Option because of the bill impacts to low income customers. COPE favours Option because it believes that what it calls the greatest price distortion is with the Step energy rate, not the Step energy rate and because Option would provide BC Hydro with a transition strategy to a flat energy rate structure. Page -

236 Chapter - Residential Rate Design 0 0 The trade-off is: Achieving better economic efficiency, which favours Option as the Step energy rate would be approximately equal to the energy LRMC upper limit by F0. However, BC Hydro is of the view that Option Step pricing is reflective of the energy LRMC for the F0-F0 period. A number of stakeholders, including AMPC and BCSEA, urged BC Hydro to not adopt a false precision with respect to the energy LRMC for purposes of rate design proposals; Ascribing greater weight to incremental bill impacts, which favours Option. Option is the only pricing option that does not create a bill impact that is greater or lesser than CARC for a portion of the RIB class such as smaller accounts. BC Hydro is concerned with the distribution of the bill impacts under Option. The majority of customers experience a greater bill impact than CARC due to the proportionately greater increase in the Step rate. While low income customers have a bill impact distribution that is similar to the distribution of the total RIB class, a greater portion of accounts in the low income sub-segment would have higher bill impacts (i.e., above CARC) under Option than for the class as a whole. This is because low income customers, on average, have a slightly greater portion of their usage in Step than the RIB class, and Option has the price increase allocated to the Step energy rate. BC Hydro s primary RIB rate pricing principle consideration is customer understanding and acceptance, and in particular bill impacts. BC Hydro defines the Bonbright rate stability criterion as the degree of rate structure changes relative to the status quo rate structure being assessed, and as such its main application is with respect to alternatives to the RIB rate, and not alternative means of delivering Defined in section... of the Application; as noted, CARC can arise from any or all of the following: revenue requirement changes and rate rider changes. Page -0

237 Chapter - Residential Rate Design 0 the RIB rate such as pricing principles. Nonetheless, it is the case that Option is a continuation of the pricing principle from F0-F0.... Basic Charge Cost Recovery Increase BC Hydro proposes no changes to the basic charge cost recovery of customer-related costs. The Residential basic charge was introduced in March and has since been increased by the amount of any RRA rate increase as approved by the Commission. The basic charge is intended to recover a portion of BC Hydro s customer-related costs, which do not vary with usage. The current RIB rate basic charge recovers per cent of customer-related costs. To respond to Direction of Commission Order No. G-- summarized in Table - above, BC Hydro assessed and ultimately rejected an increase to basic charge recovery of customer-related costs based on customer bill impacts, including to low income customers. At Workshop, BC Hydro outlined: 0 Increasing the basic charge so that it recovers more or all of BC Hydro's customer costs to supply the Residential rate class would provide a closer relationship between the fixed cost elements of BC Hydro's cost structure and the rate elements whose purpose is to provide some recovery of those costs, but would have significant bill impacts on low usage customers. BC Hydro modelled a 00 per cent basic charge cost recovery to illustrate this. BC Hydro is opposed to increasing the basic charge to recover 00 per cent of customer-related costs due to the very high bill impacts imposed on some customers. BCSEA opposed any change to the basic charge, noting that the current charge is accepted by customers and any change would produce little or no additional conservation. BCOAPO is of the view that the basic charge is regressive and opposes any proposal to increase the charge. BC Hydro shares Pursuant to Commission Order No. G--; Page -

238 Chapter - Residential Rate Design 0 BCOAPO s concern with increasing the amount of cost recovery through the basic charge due to the impact on low consuming customers, including apartments and some low income customers; and Decreasing the basic charge would diminish the relationship between the basic charge and fixed costs. BC Hydro opposes eliminating all forms of fixed charges such as the basic charge; as stated by CEC at Workshop, utilities generally have a fixed charge in addition to a volume-based energy charge. Nor does BC Hydro support a reduction in the basic charge recovery of customer-related costs. BC Hydro notes its jurisdictional assessment of residential Canadian electric utility residential rate basic charge cost recovery presented at Workshop a, which range between a low of per cent (SaskPower) and a high of 00 per cent (New Brunswick Power). The current RIB rate basic charge recovery of per cent is in the range of Canadian electric utility residential rate basic charge cost recovery but at the lower end of the range; for example, reducing RIB rate basic charge recovery of customer costs from per cent to per cent would leave BC Hydro with the second lowest residential basic charge cost recovery of the eight Canadian electric utilities surveyed (SaskPower, Manitoba Hydro, Hydro Quebec, Nova Scotia Power, Newfoundland Power, New Brunswick Power, YECL, FortisBC) Minimum Charge BC Hydro is not proposing a separate minimum charge. Minimum charges are intended to recover a minimum contribution toward fixed costs. Direction of the Commission Order No. G-- tied a separate minimum charge to recovering some portion of the cost of customers remaining connected to the system during periods of very low consumption or dormancy. Currently, BC Hydro s basic charge is the minimum charge for Residential service. Slide of the Workshop a presentation found at Appendix C-B of the Application. Page -

239 Chapter - Residential Rate Design 0 0 To respond to Direction of the Commission Order No. G-- summarized in Table - above, BC Hydro considered a separate minimum charge. BC Hydro modeled a $ per month minimum charge, roughly equivalent to the average fixed Distribution and customer-related cost per month per Residential customer. BC Hydro tested the idea that additional cost recovery through a separate minimum charge may benefit lower consuming customers, including some low income customers, given that the charge would allow for a consequent lowering of the RIB Step rate. In Workshop b-related analysis, BC Hydro determined that it would be unable to precisely target a minimum charge to materially improve cost recovery from dormant or low use accounts. BC Hydro noted that a minimum charge would affect about. per cent of Residential customers, of which about 0 per cent are low income customers. At Workshop b, BC Hydro sought stakeholder comment on whether a minimum charge should be implemented, separate from the basic charge. All stakeholders providing written comments on the topic as part of Workshop b feedback except BCNHPA agreed that BC Hydro should not pursue a separate minimum charge at this time. BCOAPO, BCSEA and FNEMC expressed concern that a separate minimum charge would disproportionately impact low income customers, and advanced that potential benefits of a minimum charge are uncertain at best.... Step /Step Threshold BC Hydro proposes no change to the existing Step /Step threshold. The current threshold of kwh per month reflects typical residential use, as it still represents approximately 0 per cent of the monthly median consumption given seven years of consumption data to date. This is shown by Figure - and Table - below. Page -

240 Monthly kwh Chapter - Residential Rate Design Figure - Median Consumption per Month F00 F00 F0 F0 F0 F0 F0 Use for Modelling (Avg of Median Consumption ( kwh/month) at time of 00 Commission Decision yrs) Current Average of Median Consumption over the past seven years ( kwh/month) Current Threshold ( kwh/month), as determined by Commission, which is ~0 per cent of median consumption 0 per cent of Average of Median Consumption over the past seven years ( kwh/month) Figure - is updated from slide of the Workshop presentation found at Appendix C-A. Page -

241 Chapter - Residential Rate Design Table - Median Consumption per Month Monthly Median (kwh)* F00 F00 F0 F0 F0 0 F0 F0 0 Seven-Year Average Threshold set from 00 Commission Decision, page 0 Based on 0% of the Monthly Median (kwh) * Computed based on the same methodology as the 00 RIB Application which includes all customers in RS 0 with consumption between,00 kwh/year and 0,000 kwh/year. The monthly median of each year is computed as the median annual consumption divided by. Under the existing Step /Step threshold, BC Hydro estimates that the majority of Residential accounts experience the Step price as their marginal rate (Figure -), which is about per cent for F0. That proportion is smaller (0 per cent) for low income customers, likely due to the higher proportion of apartment dwellers in that segment. Refer to Figure -. 0 Figure - Step Exposure, all Accounts Page -

242 Chapter - Residential Rate Design Figure - Step Exposure, Low Income 0 BC Hydro concludes that moving the Step /Step threshold results in no substantive changes from status quo RIB conservation forecasts within the scope modelled, given a maximum bill impact constraint of 0 per cent. BC Hydro agrees with BCSEA that there is no apparent problem with the current Step /Step threshold, and generally that the existing RIB rate design has the advantage of customer understanding and acceptance. BC Hydro modelled a range of both increases and decreases to the Step /Step threshold. As reviewed at Workshop, the bill and conservation impacts of changing the threshold vary by the exposure of customers to the Step energy rate (which is held constant) and by the consequent increase or decrease to the Step energy rate (to maintain revenue neutrality): Exposing more customers to the Step energy rate through even a moderate decrease in the Step /Step threshold has the effect of imposing higher bill impacts on nearly all typical customers, with no substantive change in conservation overall. Figure - below illustrates the bill impacts of reducing the threshold from kwh per month to kwh with a minor reduction to the Step rate to maintain revenue neutrality. Page -

243 Chapter - Residential Rate Design Figure - kwh Step/Step Bill Impact Distribution Note: The chart above is zoomed to show the majority of customers. Color bars indicate the annual consumption range for the middle 0 per cent of each customer segment. 0 Alternatively, residually calculating the Step energy rate while keeping the Step energy rate constant would subject a number of typical customers to bill impacts higher than the RRA rate increase but with no substantive change in net conservation; and Increasing the Step/Step threshold while maintaining Step at the status quo price would result in an increase in conservation as a result of increasing the Step energy rate to maintain class revenue neutrality. However, this would also impose a wide range of bill impacts across customer types. A moderate increase to the threshold results in lower bill impacts to typical customers and higher bill impacts to higher than average users. Figure - illustrates the bill impacts of moving from the existing kwh threshold to a kwh threshold. Figure - is reproduced from slide of the Workshop presentation found at Appendix C-A. Page -

244 Chapter - Residential Rate Design Figure - kwh Step/Step Bill Impact Distribution 0 Note: The chart above is zoomed to show the majority of customers. Color bars indicate the annual consumption range for the middle 0 per cent of each customer segment.. Residential Dual Fuel Interruptible (E-Plus) Rate.. BC Hydro s Preferred Residential E-Plus Rate Design As described in section.. of the Application, BC Hydro proposes to amend Special Condition of RS 0 so that Residential E-Plus service will only be provided where BC Hydro has available energy and capacity to do so, as illustrated in Appendix F-D. The Residential E-Plus Amendment is consistent with the wording found in BC Hydro s other non-firm (interruptible) rates such as the Shore Power Rates recently approved by the Commission and RS 0, and will enable BC Hydro to practically interrupt the service... Background RS 0, the Residential E-Plus rate, is a non-firm rate closed to new customers in 0 under which customers pay a discounted rate for space and water heating loads on condition of having an alternative fuel back-up heating system. The Figure - is reproduced from slide of the Workshop presentation at Appendix C-A. Page -

245 Chapter - Residential Rate Design 0 RS 0 energy rate for F0 is. cents/kwh and there is no basic charge. There are approximately,00 Residential E-Plus customers. Residential E-Plus customers represent a small portion of the Residential customer revenues (approximately $. million of $. billion (F0)). E-Plus rates were introduced in to residential and commercial customers. The purpose of the rates was to market surplus energy that would have been spilled because at the time consistent access to the spot market was not available. As part of the 00 RDA Decision, the Commission approved restricting the ability to transfer the E-Plus rate to a new customer by amending the RS 0 Availability clause to state that the E-Plus rate is available only in Premises where there has been no change in customer since April, 00. The 00 RDA Decision contains Residential E-Plus-related directions relevant to or to be addressed as part of the 0 RDA, summarized in Table -. Commission Order No. G-0-0; ecision.pdf. Page -

246 Chapter - Residential Rate Design Table - Summary of 00 RDA Decision Residential E-Plus Directions Direction The Commission Panel has also considered the E-Plus Group s submission that the price of [RS 0] would never exceed two thirds of the regular rate and finds that this statement was made to E-Plus customers in the form of a letter from BC Hydro and that such a communication cannot bind the Commission The Commission Panel directs BC Hydro to include the interruptible service to its E-Plus customers as a separate class in its future [Fully Allocated] COS with its next rate design application or rate design filing, and to calculate the costs of providing service as though it has the ability to interrupt the class for the four winter months The Commission Panel directs BC Hydro to pay more attention to the exercise of its rights under the [E-Plus] Rate Schedules and to invest the necessary time and resources to ensure that its E-Plus customers comply with the Special Conditions of the Rate Schedules, and to work with E-Plus customers who may wish to move back to the firm rate to ensure that information on [DSM] programs are made available to them Status No BC Hydro action required. Note that BC Hydro s preferred Residential E-Plus rate design does not include energy rate re-pricing other than to continue to increase the RS 0 energy rate by Commission approved RRA rate increases. Refer to section.. and.. below As discussed in section.. of the Application, BC Hydro has not separated out Residential E-Plus customers as a separate rate class from the Residential rate class. The topic of how to calculate the Residential E-Plus heating load R/C ratio was discussed at Workshop and refined/presented at Workshop b. The resulting E-Plus heating load R/C ratio is set out below in Table -. As noted in section. of the Workshop b Discussion Guide found at Appendix C-B of the Application, BC Hydro acted on the E-Plus compliance portion of the 00 RDA Decision by requesting E-Plus customers confirm their compliance with the conditions of the rate. Two direct mailings were sent between November 00 and February 00 and an additional four were done between December 0 and May 0; follow-up phone calls took place in spring 00 and in October 0. Non-responsive customers were transferred off the rate as were non-compliant customers. BC Hydro has never interrupted E-Plus load. Special Condition of RS 0 restricts BC Hydro s right to interrupt the supply of electricity; there must be a surplus hydro energy and the service cannot be provided economically from other energy sources. This is very different language than the typical interruptible rate provisions whereby BC Hydro will only provide service when it has available energy and capacity to do so. As a result of stakeholder input gathered at Workshop and at Workshop b: 0 BC Hydro continues to assign Generation, Transmission and Distribution demand-related costs to Residential E-Plus customer heating load because Page -0

247 Chapter - Residential Rate Design 0 such E-Plus loads are included in BC Hydro s peak demand load forecast and planning assumptions, as there is no ability to interrupt E-Plus customers for capacity-related reasons given RS 0 Special Condition, which specifically refers to interruptions for energy; 00 E-Plus load should not be in the energy load forecast. While there is no definition of the phrase lack of surplus hydro energy in Special Condition, it is circular to include E-Plus load for purposes of determining whether there is such a surplus. On this basis, BC Hydro would not assign Residential E-Plus heating load any Generation energy-related costs for COS analysis. The R/C ratio of Residential E-Plus Heating load is ~ per cent when Generation costs are not assigned, as shown in row A of Table -. The R/C ratio of Residential E-Plus Heating load is ~ per cent when generation costs are assigned, as shown in row B of Table -. These figures compare to a R/C ratio for all remaining E-Plus customer load of about per cent, as shown in row of Table -. 0 These are high level estimates developed using actual F0 billing data for E-Plus customers. Table - Residential E-Plus R/C Ratios Row A B F0 Residential E-Plus Heating load, Generation energy costs not assigned Residential E-Plus Heating load, Generation energy costs assigned Total Revenue ($ million) Total Cost ($ million) Revenue Shortfall ($ million) R/C Ratio (%)... ~..0. ~ Residential E-Plus Remaining load.. 0. ~ 0.. Options Reviewed In a letter dated February, 0 (found at Attachment to the Workshop a/b consideration memo at Appendix C-B), BC Hydro sought feedback on the 00 Refer to section of the Workshop consideration memo at Appendix C-A. 0 Refer to pages to of the Workshop b Discussion guide at Appendix C-B of the Application. Page -

248 Chapter - Residential Rate Design Residential E-Plus rate as part of the 0 RDA customer engagement. In this letter to E-Plus customers, two options for the Residential E-Plus rate were put forward: Option maintain the E-Plus rate under the same terms and conditions; and Option - phase out E-Plus rate over a period of time (e.g., five to ten years) after which customers would pay the default rate for their rate class for all consumption. 0 0 After considering all feedback (as described below), and in particular, to the issue that the E-Plus rate should serve a useful function, BC Hydro developed a third option - Option. At Workshop b, BC Hydro set out the three options for Residential E-Plus rates:. Status Quo;. Phase out the E-Plus rate and transition accounts to the RIB rate; and. Amend RS 0 Special Condition to provide a practical interruptible option. Under Option, Special Condition of RS 0 would be aligned with the language found in BC Hydro s other interruptible (non-firm) rates... BC Hydro Proposal and Stakeholder Engagement As described in section... of the Application, BC Hydro engaged E-Plus customers through a letter dated February, 0 seeking feedback on the E-Plus rate as well as holding two open houses held in Nanaimo and Victoria on April and April, 0. BC Hydro received approximately,00 Residential E-Plus customer responses to the February, 0 letter (about per cent of the total number of Residential E-Plus customers). The vast majority of respondents support Option for a number of reasons including:. The E-Plus rate is a contract between BC Hydro and the customer ( per cent of comments); Page -

249 Chapter - Residential Rate Design 0. Investments in back-up systems were made in good faith ( per cent of comments);. Electricity affordability ( per cent); and. The closed rate will end under attrition given the generally older age of E-Plus customers ( per cent). As described in the section. of the Workshop a/b consideration memo, the E-Plus Homeowners Group (EPHG) provided feedback in the form of a letter (found at Attachment to the Workshop a/b consideration memo at Appendix C-B) expressing why EPHG believes E-Plus service should be maintained under existing terms and conditions. The comments of EPHG largely parallel the feedback from individual Residential E-Plus customers: BC Hydro should respect its agreements with E-Plus customers; Homeowners have made considerable investments to qualify and remain on E-Plus; Ending the E-Plus program would impose considerable financial hardship on users, almost all of whom are seniors; E-Plus rates are associated with energy conservation; and The small group of households on the E-Plus program do not measurably impact power supply or costs in the province. 0 EPHG notes also that E-Plus customers were not notified of the additional Option under consideration. Despite this, in its letter EPHG opposes Option. EPHG considers that the E-Plus rate has been serving a useful function since it was first introduced. Refer to the copy of EPHG s letter of June, 0 found at Attachment to the Workshop a/b consideration memo at Appendix C-B of the Application. As noted below in this section, EPHG and a few Residential E-Plus customers provided BC Hydro with feedback on Option in September 0. Page -

250 Chapter - Residential Rate Design 0 BCOAPO indicated it was neutral on Residential E-plus issues. Other organizations representing some sectors of BC Hydro s residential ratepayers commented as follows. At Workshop b COPE suggested an option whereby customers are given a choice between truly interruptible service, if a service can be developed and implemented to provide an appreciable benefit to BC Hydro and the system that justifies the lower rate, and a phase-out of RS 0 over a reasonable period instead of the attrition program currently in place. As part of its written Workshop -related feedback BCSEA questioned whether Option would improve the situation but notes that it had not had a chance to review BC Hydro s response to BCSEA s written questions, which were provided in Attachment to the Workshop a/b consideration memo. Taking into account the feedback received BC Hydro favours Option for the reasons described in section. of the Workshop a/b Consideration Memo and Workshop b Discussion Guide (found at Appendix C-B). Some of the reasons include: 0 Rejection of Option on the basis of the large bill impacts to E-Plus customers of Option. The median expected bill impact to E-Plus customers if E-Plus customers were transferred to the RIB rate is approximately per cent; The potential value of capacity and 0 IRP Recommended Action. The 0 IRP identifies a need for capacity in F0 assuming BC Hydro continues with its current DSM initiatives and renews IPP contracts as recommended in the 0 IRP. As canvassed in section... of the Application, the system capacity value is based on Rev at $0-/kW-year if no LNG demand materializes. 0 As part of 0 IRP Recommended Action, BC Hydro is investigating the viability of residential demand response initiatives through a pilot program in Sidney and North Saanich, Vancouver Island aimed at shaving and shifting peak load by focusing on hot water heating and storage. Option 0 If forecasted LNG demand materializes, the next avoided capacity generation resource would be a SCGTs with a UCC of about $/kw-year; refer to section... of the Application. Page -

251 Chapter - Residential Rate Design 0 dovetails with these initiatives. Refer to BC Hydro s response to BCSEA Question. found at Attachment to the Workshop a/b consideration memo for further details; and The proposed changes to Special Condition will allow for the Residential E-Plus rate to be practically interruptible. BC Hydro proposes the following language for Special Condition as shown on the amended RS 0 in Appendix F-D: BC Hydro will provide electricity under this rate schedule only to the extent that it has energy and capacity to do so. BC Hydro may, at any time and from time to time, interrupt the supply of electricity under this rate schedule where BC Hydro does not have sufficient energy or capacity. This language aligns with interruption provisions in the recently Commission approved Shore Power Rates. 0 The proposed language is also generally consistent with Commission Order No. G--0 0 which approved interruption criteria for E-Plus service as follows: BC Hydro may, at any time and from time to time, interrupt the supply of energy under this Rate Schedule. This point is expanded on in BC Hydro s response to BCSEA written question. provided in Attachment to the Workshop a/b consideration memo at Appendix C-B. 0 In summary, Option ensures that customers who use the E-Plus rate would continue to receive the current discount, while also ensuring that the rate is truly interruptible and serves a useful function as was intended when the discount was offered. BC Hydro communicated its selection of Option to Residential E-Plus customers by way of a letter dated August, 0, a copy of which is found at 0 Refer to Exhibit B- in the Approval for Shore Power Rate proceeding, Appendix C-, Special Condition of RS 0; B--BCH-Application-ShorePowerRate.pdf. The Commission approved the Shore Power Rate pursuant to Commission Order No. G--; G--_BCH_Shore-Power-Order-with- Reasons.pdf. 0 G--0_BCH_CloseAvailabilityofResidenti alandgeneralduelfuelinterruptibleservice.pdf. Page -

252 Chapter - Residential Rate Design 0 0 Appendix C-E. In response, EPHG sent two s on September, 0 and a letter dated September, 0 (copies found at Appendix C-E) raising two issues with Option :. Requesting that BC Hydro include in RS 0 a statement that BC Hydro will not sell power outside of B.C. for six months prior to interrupting Residential E-Plus customers. BC Hydro rejects this potential condition given that it would mean BC Hydro would never be able to interrupt Residential E-Plus customers as BC Hydro buys and sells electricity every day through trade; and. Asking BC Hydro to confirm the notice period for interruptions. Since its inception, RS 0 has not contained a notice period provision. As part of developing its response, BC Hydro reviewed its other interruptible rates. There is no notice provision in RS 0 (the Distribution Service Shore Power Rate) or RS (the Transmission Service Shore Power Rate). There is a requirement in RS 0 for customers to give 0 minutes notice prior to taking energy under RS 0 but this is not analogous to the Residential E-Plus situation. BC Hydro concluded that RS (Modified Demand) is the most relevant of its existing interruptible rates. There is no notice provision in RS itself. However, section. of the accompanying TS provides that BC Hydro will make reasonable efforts to alert the Customer by telephone of the potential of making an Offer for Demand Reduction in the days or hours ahead (refer to section.. of the Application for additional detail). BC Hydro proposes the following as business practices: (i) the issuance of a seasonal notice each year prior to the November-February winter months reminding Residential E-Plus customers that they are served on an interruptible rate. This seasonal notice would be given to all Residential E-Plus customers through auto-dialer, or letter; (ii) up to one week s notice that an interruption event is likely to occur. This notice would happen through auto-dialer, or letter. The interruption itself would occur by manual or automatic means or by written notice as set in Special Condition of RS 0. Page -

253 Chapter - Residential Rate Design 0 0. Low Income Rate As noted above in section., consideration of any intervener low income rate proposal will occur through IRs on intervener evidence, additional legal submissions and other processes as the regulatory review of RDA Module unfolds. This section provides BC Hydro s low income rate legal and jurisdictional assessment as communicated through the 0 RDA stakeholder engagement processes. As described in section... of the Application, BC Hydro s proposed rates in the 0 RDA, and the rates to be set by the Commission, must be fair, just and not unduly discriminatory. Pursuant to subsections () and () of the UCA, public utilities must not make, demand or receive an unjust, unreasonable, unduly discriminatory or unduly preferential rate for a service by it in B.C. While the Commission has considerable discretion in designing rates pursuant to section 0 of the UCA, subsection 0()(b) provides that the Commission must have due regard in the setting of a rate that: (i) it is not unjust and unreasonable within the meaning of section. As noted in Table - in Chapter, generally speaking, BC Hydro accepts Bonbright s view that rates are unduly discriminatory when they have a serious distortion effect on the relative use of the service. This means rate structures must not be divorced from the nature and quality of the associated service, including cost of service. The issue of the Commission s jurisdiction to approve a differentiated rate for BC Hydro s low income customers arose in 00 as part of the review of BC Hydro s RIB rate. BC Hydro s and intervener submissions concerning this topic are found at the Commission website. 0 In the 00 RIB Decision the Commission stated that it was unnecessary to decide the issue of its jurisdiction to set low income rates because the Commission concluded that even if it had the jurisdiction to do so, it would not exercise that discretion as the vast majority of BC Hydro s low income 0 Page -

254 Chapter - Residential Rate Design 0 customers will be better off under the [the approved RIB rate as compared to] a flat rate. 0 Refer to section... above for further discussion on this topic. In the context of UCA sections to rate setting, low income rates are likely to be seen as unduly preferential to low-income customers or unduly discriminatory to the remaining customers who subsidize those rates because the low income rate would be based on the personal characteristics of the customer, divorced from the cost to deliver electricity to the premises. BC Hydro outlined this position at Workshops, and a, and section.. of the Workshop consideration memo (found at Appendix C-A). This position accords with the majority of Canadian electric utilities and utility commissions, where cost-based ratemaking is the most widely-used standard for evaluating whether rates are fair, just and not unduly discriminatory. Canadian electric utilities typically offer targeted low income DSM programs, as opposed to low income rates: 0 Each of the Nova Scotia Public Utility and Review Board (NSRUB), 0 the New Brunswick Energy and Utilities Board 0 and the Alberta Energy and Utilities Board 0 decided that in the absence of express language authorizing the particular utility board to set rates according to customer s ability to pay rather than according to the cost of serving those customers, low income rates are unduly preferential and/or unjustly discriminatory; Ontario is the exception. In 00, a majority of the Ontario Superior Court of Justice, Divisional Court in Advocacy Centre for Tenants-Ontario v. Ontario 0 00 RIB Decision, pages to ; refer to note 0 in Chapter for citation. 0 In 00, the Nova Scotia Court of Appeal (NSCA) in Dalhousie Legal Aid Service v. Nova Scotia Power Inc. (00 NSCA ) upheld that the NSURB does not have jurisdiction to set a rate featuring credits for low income customers as Nova Scotia s Public Utilities Act (R.S.N.S, c.0) (NSPUA) did not authorize NSURB to set rates based on customer income level. The NSCA agreed with NSURB that low income rate relief is a social and public policy question for the Nova Scotia legislature. 0 In the Matter of a Review of New Brunswick Power Distribution and Customer Care Corporation s Customer Care Policies, January 00, pages to ; 0E.pdf. 0 Decision 00-0, section..; Page -

255 Chapter - Residential Rate Design 0 0 Energy Board 0 found that the Ontario Energy Board (OEB) is granted authority to use any method or technique it considers appropriate in approving just and reasonable rates under Part III (Gas Regulation), section of the Ontario Energy Board Act (OEB Act). Subsequently, the OEB introduced the Low Income Energy Assistance Program (LEAP) and the related Low Income Customer Rules. All regulated utilities are required to offer LEAP, which among other things consists of specific low income rules such as: security deposit waiver; equalized billing payments (spread evenly over months); suspension of disconnection process for days; and more time to pay outstanding balances. LEAP is described in more detail in section... of the Application as it pertains to BC Hydro s assessment of the potential low income terms and conditions, and is also the subject of BC Hydro s jurisdictional review of low income rates/low income terms and conditions/low income DSM programs found at Appendix C-D. In a letter dated April, 0 the Ontario Minister of Energy invoked section of OEB Act to request OEB recommendations on rate relief consisting of credits applied against low income electricity bills. The OEB in its December recommendations report stated that it believed legislative change would be necessary as the OEB indicated that it did not have the authority to either set a charge on ratepayers for this type of program or to establish the rules for the funds to be disbursed to the utility distributors. In February 0 the Ontario Minister of Energy announced 0 [00] OJ No. 0. In this regard, the Ontario court contrasted section of the OEB Act with section of the NSPUA, which provides that rates must under substantially similar circumstances and conditions in respect of service of the same description be charged equally to all persons and at the same rate. S.O., c., Sch. B; copy available at gy+consumers. Copy at f. OEB, Report of the Board: Developing an Ontario Electricity Support Program, December, 0, page ; ESP_0.pdf. Page -

256 Chapter - Residential Rate Design 0 such rate relief would proceed, with costs to be recovered from all regulated utility ratepayers. As part of the Manitoba Public Utilities Board (MPUB) decision (MPUB Order /, concerning Manitoba Hydro s 0/ and 0/ General Rate Application (Manitoba Hydro 0-0 Rate Application)), the MPUB ordered Manitoba Hydro to initiate a collaborative process to develop a bill affordability program. The MPUB concluded it had jurisdiction to make Order / through subsection () of the Manitoba Crown Corporations Public Review and Accountability Act, which authorizes the MPUB to consider "any compelling policy considerations that [MPUB] considers relevant to the matter", and that this language is broadly worded similar to the OEB Act. The MPUB ordered a collaborative process to examine a number of different bill affordability program models, including capping a customer s bill or providing a fixed credit on the bill (all based on household income), and an inclining block rate similar to the RIB rate on the basis that such a rate is more progressive that Manitoba Hydro s flat residential rate. Refer to Appendix C-D for BC Hydro s jurisdictional review of low income rates/low income terms and conditions/low income DSM programs. The common element is that legislation has been used in those jurisdictions in which low income rates have been introduced or in which the utility commission may consider such rates: 0 An example of the former is California, where the California legislature mandated with the Warren-Miller Energy Lifeline Act that each California residential electricity customer should receive a minimal supply of electricity at a discounted price while paying a higher price for electricity taken in excess of that minimum. The California legislature tasked the CPUC with Copies of the Ontario Minister of Energy s letters and details concerning the announced rate relief are found at Consultations/Low-Income%0Assistance%0Review%0%EB-0-0%. Section.0 of MPUB Order No. / concerning Manitoba Hydro s 0/ and 0/ General Rate Application; C.C.S.M. c.c; copy at California Stats, Ch. 00, section (a). Page -0

257 Chapter - Residential Rate Design 0 designating a baseline quantity which is necessary to supply a significant portion of the reasonable energy needs of the average residential customer ; the result is the baseline allowance. The CPUC by statute is tasked with not only ensuring utility rates are just and reasonable. The California Public Utilities Code also states that electricity is a basic necessity and that all residents of the state should be able to afford essential electricity, directs the CPUC to ensure that low income ratepayers are not [j]eopardized or overburdened by monthly energy expenditures and addresses the lifeline program 0 established by the Miller-Warren Energy Act; Quebec is an example of the latter. The legislature passed An Act Respecting the Régie de l'énergie; section allows the Régie de l Énergie to consider rates that are fair and reasonable, and consider such economic, social and environmental concerns as have been identified by order by the Government. To date Quebec has not introduced low income rates. 0. Methodologies for Minister Residential Inclining Block Rate Letter This section is organized to respond to the Commission RIB Report Methodology Letter as follows. The Commission RIB Report Methodology Letter asks BC Hydro for a detailed outline of the methodologies for the report [BC Hydro] will submit to the Commission on the five questions posed by the [Minister RIB Report Letter] including : How BC Hydro intends to define low income customers refer to section..; The definition of baseline allowance under California statute and under CPUC orders has evolved over time. BC Hydro understands that electric utilities presently calculate the baseline using between 0 to per cent of the average residential usage for a number of California climactic zones. 0 California Public Utilities Code, sections (b) and ; CQLR c. R-.0. Page -

258 Chapter - Residential Rate Design 0 0 How BC Hydro intends to define factors that lead to high energy use refer to section..; For each of the five questions, the general approach BC Hydro intends to take to answer the question this is set out in section..; Any other relevant method(s) BC Hydro will use to gather information or answer the questions posed in the Minister RIB Report Letter this consists of providing a summary of BC Hydro s existing Residential DSM programs and detailed information concerning BC Hydro s two low income DSM program offers. Refer to section.; Any other relevant issues with the RIB rate that BC Hydro has not previously addressed but should be included in BC Hydro s report to the Commission and the Commission s report to the B.C. Government. Given that BC Hydro is reviewing the RIB rate as part of RDA Module, BC Hydro is of the view that the RDA and in particular this Chapter address this issue; and Comments on the Commission s proposed process and suggested timing. BC Hydro urges the Commission to adhere to the Minister RIB Report Letter s statement that the Commission should use the RDA Module review process to collect information for its report to the B.C. Government. Accordingly, BC Hydro is of the view that the Commission should use the RDA regulatory timetable for the issuance of Round IRs to ask any follow up questions concerning BC Hydro s proposals and the information provided in sections. and. of this Chapter, and to use the proposed December 0 procedural conference described in section.. of the Application to seek input on the timing for BC Hydro s report to the Commission after BC Hydro submits its responses to any Commission follow up questions in accordance with the timetable for BC Hydro to file its responses to Round IRs. BC Hydro shared the contents of sections. and. of the Application with FortisBC on September, 0. FortisBC advised BC Hydro on Page -

259 Chapter - Residential Rate Design 0 September, 0 that the two utilities are generally aligned with respect the methodological approach to address the Minister RIB Report Letter. There may be some differences in available data... Definition of Low Income Customers BC Hydro proposes to use Statistics Canada s LICO as the method for defining low income customers. LICO is an income threshold below which a family will likely devote a larger share of its income on the necessities of food, shelter and clothing than the average family. The approach is essentially to estimate an income threshold at which families are expected to spend 0 percentage points more than the average family on food, shelter and clothing. The reasons for using LICO are: Statistics Canada releases LICO updates annually using CPI; LICO includes required spending on a comprehensive set of basic necessities and not just on one specific component such as housing or energy costs; LICO is sensitive to family and community size as cut-offs vary by seven family sizes and five different populations of the area of residence. Thus LICO reflects different regional costs of living between rural and urban areas and between urban areas of different sizes; and LICO is the basis for all 0 RDA residential rate modelling, as elaborated upon below. 0 BC Hydro proposes to use pre-tax rather than after-tax income levels. Pre-tax levels are easier for customers and survey respondents to think about and report, and are therefore used in the REUS. The five different population groupings are: () Rural areas, which includes communities with a population of less than,000 or with a population density less than 00 persons per square kilometer that are located outside Census Metropolitan Areas (CMAs) or Census Agglomerations (CAs); () Population under 0,000: CAs below 0,000 and population centres below 0,000 persons; () Population 0,000 to,: CAs between 0,000 and, persons; () Population 00,000 to,: CMAs between 00,000 and,; and () Population 00,000 and over: CMAs with 00,000 or more persons. Page -

260 Chapter - Residential Rate Design 0... Leveraging BC Hydro s Residential End-Use Study to Inform Low Income Analytics BC Hydro has undertaken bi-annual quantitative end-use studies with its Residential customers over the past thirteen years to help facilitate and inform the load forecast and DSM program, rate design and codes and standards development. The most recent REUS is the 0 REUS, a copy of which is found at Appendix C-F of the Application. The specific objectives of the REUS are to collect and track over time detailed information about the characteristics and features of Residential customers homes, as well as the saturation of electrical end-uses. Areas of interest include: Customer household demographics; Home structure basics such as housing type, year home built, size of home, etc.; Doors, windows and insulation; Space heating; Heating controls and home temperatures; and Water Heating. 0 In addition to collecting end-use information, the REUS solicits customer opinions, attitudes and behaviours relating to electricity and conservation. Aside from any proof of documentation required by Residential customers when participating in BC Hydro s low income DSM programs, BC Hydro estimates the incidence of low income customer accounts in its service area and profiles them using its REUS first by the individual flagging of customer households in the survey sample, followed by sample expansion to the overall population. Page -

261 Chapter - Residential Rate Design 0 Step : Flagging REUS Households as Low Income Customers The REUS provides two of the three parameters necessary to flag a given customer household as low income using LICOs: ) the household s total pre-tax annual income; and ) its total number of occupants. The household s service town and postal code are then used to link in the third parameter ) the population of the household s CMA via Statistics Canada census data. In addition to the community size, parameters relating to the mean and median household income as well as the incidence of low income for the household s postal code area are linked in as reference parameters. For every one of the, households (i.e., survey records) in the 0 REUS survey, the process was as follows: 0 Match in the population of its CMA based on its postal code; To serve as a surrogate in the event of missing values, also match in the neighborhood's mean and median household income levels; Flag the customer account as low income if reported total pre-tax income is below the LICO cut-point corresponding to its household size and its CMA area; Consider neighborhood level information should the survey record be missing income and/or household size; and Consider neighborhood level information should the LICO cut-point be within the household s income bracket. Note that every survey record must be flagged as LICO or not-lico due to the fact that missing values (i.e., missing flags) will bias the estimation of the overall incidence of low income households. For a given customer household, the accuracy of BC Hydro s low income classification procedure is dependent and challenged by several factors: ) the disclosure or completeness of the survey respondent s total household income, ) Page -

262 Chapter - Residential Rate Design 0 0 the accuracy of the survey respondent s reporting of total household income, ) the use of bracketed household income levels in the end-use survey and ) the disclosure or completeness of the survey respondent s total number of household occupants. These factors are discussed below. Disclosure of Total Household Income - Total household income is the most essential parameter needed to classify a customer household in the REUS as possibly being low income. When a missing value occurs on this parameter, the customer household has to be either left as unclassified in their low income status or other secondary information has to be leveraged to make an informed classification. In this case, the mean and median household income levels for the household s postal code area together with the area s incidence of low income are taken into account to inform the decision on the low income status. For example, if the mean and median income levels for the postal code area are $,000, and the incidence of low income in that neighbourhood is say per cent, then the household in question has a very low probability of actually being of low income status. Note that in this case, $,000 is greater than even the largest of the LICO thresholds. Not unlike most other market research studies, a total of per cent of responding customers in the 0 REUS chose not to disclose their total household income. Analysis of the survey data indicates that these missing values are more or less evenly dispersed among other disclosed demographics such as region, dwelling type, household size as well as respondents gender, age and education. This suggests that item response bias is likely minimal. Instead of discarding these households from any low income analysis, BC Hydro incorporated their neighbourhood income information to serve as a proxy during classification. Accuracy of Reporting of Household Income - Income levels in the REUS are at the combined household level and as such, the accuracy of total reporting is dependent on a survey respondent s estimation or solicitation of all other working members in the home of their individual earnings. For a household with two working adults, as an example, slightly inaccurate reporting of total income say, off by just $,000 can Page -

263 Chapter - Residential Rate Design 0 0 potentially qualify or disqualify a household of low income status. The mitigating factor is that the study is self-administered, thereby giving the survey respondent essentially an unlimited amount of time to make a considered estimate of the total household pre-tax income level. Step : Sample Expansion (Data Weighting) As with most other analytics facilitated by the 0 REUS, the sample of, survey records is statistically weighted by four housing types within four regions to precisely reflect the known distributions among all Residential accounts in BC Hydro s billing system. This ensures that the sample, analytics and related findings including those that pertain to low income households are generalizable to the entire population of Residential customers in BC Hydro s service area.... Estimated Incidence of Low Income BC Hydro Customer Households The estimated incidence of low income BC Hydro customer households based on Statistics Canada pre-tax LICO cut-off measures 0 per cent in regards to the 0 tax year. Regionally, this incidence measures highest at per cent among customer households in the Lower Mainland. By housing type, the incidence measures highest at per cent among customer households in apartments/condominiums and lowest at per cent among customer households in single detached houses. Refer to Table - and Table -. Table - Low Income Status for the 0 Tax Year by Region Total (%) Lower Mainland (%) Vancouver Island (%) Southern Interior (%) North (%) Yes Low Income Household 0 No 0 Page -

264 Chapter - Residential Rate Design Table - Low Income Status for the 0 Tax Year by Housing Type Yes Low Income Household Total (%) Single Detached House (%) Duplex/Row/ Townhouse (%) Apartment/ Condominiu m (%) Mobile Home/Othe r (%) 0 0 No Other LICO Definitions considered BC Hydro reviewed the possibility of using the LICO multiplied by. measure forming part of the definition of low-income household in section of the Demand-Side Measures Regulation (DSM Regulation) but is concerned that this would have a distorting effect on analysis undertaken with respect to the RIB rate. Use of LICO results in the categorization of 0 per cent of BC Hydro s Residential customers as low income customers, while use of the DSM Regulation s LICO multiplied by. would more than double this to about per cent of BC Hydro s Residential customers. All of the RDA modelling for the RDA stakeholder engagement process and for the RDA itself (refer to sections.. and.. above) used LICO. Re-modelling and related analysis on the basis of the DSM Regulation s LICO multiplied by. would take months. BC Hydro engaged with BCOAPO on this issue at a meeting on August, 0 and understands that BCOAPO agrees with BC Hydro that Statistics Canada s LICO should be used for purposes of responding to the Minister RIB Report Letter. BCOAPO supports the continued use of the DSM Regulation s definition of low-income households as being LICO multiplied by. for low income DSM programs.... BC Hydro Residential Rate Modelling for Stakeholder Engagement BC Hydro undertook extensive Residential rate design modelling for the RDA stakeholder engagement process which will be relied on for purposes of B.C. Reg. /00; Based on the Vancouver CMA LICO. Page -

265 Chapter - Residential Rate Design 0 questions, and in the Minister RIB Rate Report Letter. As noted in section.. of the Application, for the residential sector, BC Hydro used a representative sample of 0,000 to illustrate the overall population impact. This is followed by using the representative sample from the REUS to assess impacts by customer segments, such as low income, electrical heating and housing types. Refer to sections.. and.. above... Defining Factors Leading to High Energy Use BC Hydro defines the phrase high energy use as including both energy consumption and peak demand. Based on the 0 REUS and the Residential rate class segmentation analysis in section.. of the Application, BC Hydro identifies the following factors as driving higher than average annual electricity consumption: 0 Electricity consumption by heating fuel. The 0 REUS found that single detached houses which rely on electricity for their home heating emerge as having had the highest annual consumption at, kwh (0 REUS, page ); and Electricity consumption by housing type within region. Due primarily to the fact that they rely on electricity for space heating, residential customers on Vancouver Island lead all four regions in average annual consumption at, kwh. Average household consumption was higher in the Southern Interior (0, kwh) and the North (, kwh) than it was in the Lower Mainland (, kwh), most likely due to the relatively heavier electrical demand for space heating and space cooling in those regions (0 REUS, page ). BC Hydro considered but rejected number of occupants as a factor. As noted in the 0 REUS, while the average annual household consumption of electricity generally steps up with the number of individuals in the home, the number of Page -

266 Chapter - Residential Rate Design 0 0 household occupants is correlated with the physical size of the home in terms of floor area... Approach to Address Minister Residential Inclining Block Rate Letter Minister RIB Report Letter Question BC Hydro will assess the possibility of the RIB rate causing a cross-subsidy between customers with and without access to natural gas service posed by Minister RIB Report Letter question using cost of service information. Responding to this question requires a practical definition of access to natural gas. BC Hydro proposes adopting a community approach to define access to natural gas. As noted in the Workshop summary notes found at Appendix C-B, pages D to D0 of Fortis Gas tariff list communities that have access to natural gas. Examples of B.C. communities in BC Hydro s service area without natural gas include: Clearwater, Golden, Invermere, Port Hardy and Valemount. According to the 0 REUS about 0 per cent of households in these communities use electricity for primary heating, which is higher than the provincial average. This is supported by billing data that shows F0 average residential consumption of,000 kwh per year in these areas, which is higher than median consumption for electric or non-electric residential customers of about 0,000 kwh and,00 kwh per year respectively as reported on slide of the Workshop slide deck presentation at Appendix C-A. Minister RIB Report Letter Question Question asks [w]hat evidence is available about high bill impacts [greater than 0 per cent as a result of the adoption of the [BC Hydro RIB rate] on low income customers?. As noted in section.. above, the RIB rate was implemented on BC Hydro response to question in Part of the summary notes. TermsAndConditions.pdf. Page -0

267 Chapter - Residential Rate Design October, 00, almost seven years ago. Accordingly, to respond to question, BC Hydro proposes: 0 0 To highlight the Commission s findings of the RIB rate impacts on low income customers in the 00 RIB Decision. As noted in section... above, the Commission found the vast majority of BC Hydro s low-income customers will be better off under a simple two-step inclining block structure that is revenue neutral for the residential customer class then under the [then current] flat rate ; To assess the two F0-F0 pricing principle options for the RIB rate discussed in section... above. BC Hydro s preferred pricing principle Option results in bill impacts set out in Table - above (F0 per cent; F0. per cent; and F0 per cent). No low income customer will have a bill impact greater than 0 per cent under RIB rate pricing principle Option ; As the RIB rate has been in place for almost seven years, the only sound method to gauge bill impacts to low income customers is to compare the RIB rate to an alternative had the RIB rate not been in place. BC Hydro proposes that the flat energy rate modelled for the 0 stakeholder engagement process and described in section... above serve as the counter-factual. As noted in Table - above, BC Hydro estimates that with a flat rate, in F0 0 per cent of low income accounts will experience bill impacts greater than 0 per cent, and per cent greater than 0 per cent. Minister RIB Report Letter Question As illustrated in section... above, BC Hydro modelled the bill impacts of moving from the RIB rate to a flat rate by dwelling type (apartments) and for customers using electric space heating. BC Hydro also proposes to model the bill impacts of moving from the RIB rate to a flat rate for customers in communities that do not have access to natural gas. Page -

268 Chapter - Residential Rate Design 0 0 Minister RIB Report Letter Questions and The Commission RIB Report Methodology Letter at page asks BC Hydro to provide: d. Any other relevant method [BC Hydro] will use to gather information or to answer the questions posed in the [Minister RIB Letter]. The Minister RIB Report Letter question asks what the potential is for existing DSM programs to mitigate any RIB rate-related high bill impacts on low income customers, if there are such impacts; and question asks what options there are for additional residential DSM programs, including low income programs, within the current regulatory environment. Section.. below provides a summary of BC Hydro s existing Residential DSM programs, while section.. contains detailed information on BC Hydro s two existing low income DSM program offers. As set out in section... above, BC Hydro s assessment is that in comparison to the RIB rate, a move to a flat rate will result in high bill impacts to the majority of BC Hydro s low income customers. In addition, no low income customer will have a bill impact greater than 0 per cent under RIB rate pricing principle Option. Nevertheless, BC Hydro provides information on its existing low income DSM programs as part of responding to Minister RIB Report Letter questions and, and to fulfil the commitment made to BCOAPO and other stakeholders at Workshop that BC Hydro would provide such information in the RDA Module filing.. BC Hydro Residential Demand Side Management Programs Minister RIB Report Letter question states [w]ithin the current regulatory environment, what options are there for additional [DSM] programs, including low income programs. The phrase within the current regulatory environment raises two issues: Page -

269 Chapter - Residential Rate Design At Workshop, BC Hydro set out its view that the Commission cannot accept or reject expenditures associated with BC Hydro s existing low income or other Residential DSM programs as part of the 0 RDA decision because low income DSM programs are not rates. The proper venue for such a Commission decision would be a section. UCA DSM expenditure determination filing; and The F0-F0 rate caps set out in section of Direction No. (discussed in section... of the Application) must inform any response to Minister RIB Report Letter questions and. 0.. BC Hydro s Existing Residential Demand Side Management Programs BC Hydro s existing Residential DSM programs are summarized in Table -. Table - Program Name Retail Rebate Behaviour Refrigerator Buy Back New Home Home Energy Rebate Offer Low Income Existing BC Hydro Residential DSM Programs Description Provides a rebate offer for lighting, appliances, consumer electronics and other energy efficient products. Provides an incentive for Residential customers who are successful in reducing their electricity consumption by 0% over one year. Provides an incentive for the removal of secondary, inefficient fridges. Provides incentives to owners of qualified Energy Star new homes. Features of Energy Star new homes include efficient heating and cooling systems, Energy Star appliances, heat recovery ventilation systems, insulation and Energy Star windows and doors. Provides rebates to owners of existing homes for improving the energy efficiency of their home. Rebates are provided for insulation, draft proofing, ductless heat pumps, Energy Star water heater, Energy Star bathroom fans, Energy Star windows and doors, Energy Star high efficiency heating systems and Energy Star heat recovery ventilators. Provides energy savings kits and financing for deeper energy efficiency retrofits for low income customers. Refer to section.. below. Refer to Part, response to question of the Workshop summary notes at Appendix C-B of the Application. Page -

270 Chapter - Residential Rate Design.. BC Hydro s Existing Residential Low Income Demand Side Management Programs BC Hydro has two existing low income DSM program offers: 0 0 Energy Savings Kits (ESKs): The ESK is a package of basic energy saving measures provided at no charge that can be installed by most homeowners or tenants with limited or basic tools. ESKs contain lighting-related products (such as CFLs, light switch stickers and a nightlight), water saving products (such as faucet aerators and a low flow showerhead), heat-loss products (such as water heater pipe wrap, draft proofing material, and window film) and general energy savings tips and brochures. As of August, 0, almost,000 low-income houses have received energy savings kits from BC Hydro since the ESK program launched in April 00; and Energy Conservation Assistance Program (ECAP): ECAP provides eligible BC Hydro low income Residential customers at no charge with a home evaluation, installation of energy saving products and education on what customers can do around their homes to save energy. Some of the energy saving products that may be installed include energy saving light bulbs (compact fluorescent lamps), low-flow showerheads and faucet aerators, a water heater blanket and pipe wrap, advanced draft proofing (such as caulking and door sweepers), an Energy Star refrigerator, a high-efficiency gas furnace, and insulation for attics, walls and crawlspaces. As part of the December 0 DSM Milestone Evaluation Summary, BC Hydro estimated eligible low income households, about per cent own and inhabit electrically heated SFDs eligible for further retrofits under the basic or advanced stream of ECAP. The advanced stream includes basic offerings but adds a comprehensive home insulation offer. Both electric and natural gas heated SFDs are eligible for the insulation upgrades offer due to BC Hydro s partnership with FortisBC. ECAP commenced in May 00. As of August, 0, over,00 of BC Hydro s Residential customers have participated in the program (with over,00 Page -

271 Chapter - Residential Rate Design 0 0 receiving Energy Star fridges). The energy savings kits referred to above can help recipients save up to $00/year on utility bills, while a low income customer receiving basic measures and a fridge could save up to $0/year and a low income customer receiving insulation upgrades up to $00/year (approximately per cent of the annual bill for a typical electrically-heated single-family home for a low-income customer in BC Hydro s service area). These two DSM program offers have delivered nearly half a million dollars in electricity cost savings to participants to date. Similarly defined programs are available in many other North American jurisdictions; refer to the low income rate/low income DSM program jurisdictional review at Appendix C-D. Low income customers face barriers to participation in BC Hydro s conventional Residential DSM programs. Factors affecting participation include low disposable income and sub-optimal access to program information and financing. Program activities to reach qualified low income participants include marketing bill inserts, direct mail campaigns, advertising through non-profits, print materials, as well as contractor training, quality assurance services and technical consulting services. BC Hydro strives to reach customers by partnering with existing agencies that are already working within this community. Partnerships to date include FortisBC, the B.C. Ministry of Social Development and Social Innovation (MSDSI), BC Housing, food banks and Better At Home (managed by the United Way, one of the largest social service agencies in B.C.). BC Hydro also provides capacity funding to non-profit housing providers and aboriginal units to assist them to hire someone locally to help promote the ESK and ECAP programs and collect application forms from tenants and/or members of the community on behalf to the two programs. These two DSM program offers identified above were originally designed for Residential low-income customer identified under Statistics Canada s before-tax LICO. On July 0, 0 amendments to the DSM Regulation came into effect. The following is relevant to BC Hydro s low income DSM programs: Page -

272 Chapter - Residential Rate Design The low income program eligibility LICO threshold is raised to. times the LICO; and There is a list of pre-qualified recipients of various government income and housing assistance programs. Table - sets out the low income household income levels for ESK and ECAP eligibility. Table - ESK and ECAP Eligibility Household Incomes Household Size (Number of Persons) Household Income ($),00,00,00,00,00,00 or more,00 0 At Workshop a, BC Hydro stated that it anticipates that these DSM Regulation changes will increase eligibility for its two low income DSM programs from per cent to per cent of BC Hydro residential customers. Figure -0 below sets out ECAP applications for F0. The dashed line shows the applications that would have been approved prior to the changes to the DSM Regulation, while the solid line shows the applications under the DSM Regulation changes. As a result of the DSM Regulation amendments relating to the definition of low income household, 0 additional households were approved for ECAP, representing a per cent increase in individual applications. Based on individual applicants; excludes bulk applications from non-profit housing providers and aboriginal communities where individual income levels are not collected. Page -

273 Chapter - Residential Rate Design Figure -0 DSM Regulation Amendments and ECAP Participants In F0, the DSM Regulation amendments resulted in,00 additional households receiving ESKs, representing a per cent increase in participation. Refer to Figure -. Refers to households who would not have qualified under the previous DSM Regulation low income rules. Page -

274 Chapter - Residential Rate Design Figure - DSM Regulation Amendments and ECAP Participants Page -

275 Chapter General Service Rate Design

276 Chapter - General Service Rate Design Table of Contents. Introduction and Chapter Structure Summary of BC Hydro Proposals Summary of Stakeholder Engagement and Other Inputs Chapter Structure Small General Service BC Hydro s Small General Service Proposal Background Small General Service Rate and Options Reviewed SGS Rate Structure SGS Basic Charge Cost Recovery BC Hydro Proposal and Stakeholder Engagement Medium General Service BC Hydro s Medium General Service Proposal Background Existing MGS Energy Rate Existing MGS Demand Charge MGS Customer Characteristics MGS Two-Part Energy Rate Evaluation Reports Methodology Results Options Reviewed Alternatives Development Screening of Alternatives and Stakeholder Engagement BC Hydro Proposal and Stakeholder Engagement Bill Impacts under BC Hydro s Proposed MGS Rate Structure MGS Demand Sensitivity Rate Structure ( per cent Recovery) Large General Service BC Hydro s Large General Service Proposal Background Existing LGS Energy Rate Existing LGS Demand Charge LGS Customer Characteristics LGS Two-Part Energy Rate Evaluation Reports... - Page -i

277 Chapter - General Service Rate Design... Methodology Results Options Reviewed Alternatives Development Screening of Alternatives and Stakeholder Engagement BC Hydro Proposal and Stakeholder Engagement LGS Flat Energy Rate LGS Flat Demand Charge and Per Cent Recovery of Demand-related Costs Illustrative Simulations Proposed LGS Rate Structure ( Per Cent Demand cost recovery) LGS Demand Sensitivity Rate Structure (0 Per Cent Recovery) Transition Analysis for Medium General Service and Large General Service Proposals Medium General Service Large General Service Requested Order for the LGS and MGS New Account Rule Three Matters Associated with Medium General Service and Large General Service Proposals Tariff Supplement No Medium General Service and Large General Service Control Groups Corix and Rate Schedule xx Rate Schedule Background BC Hydro Proposal and Stakeholder Engagement... - List of Figures Figure - F0 General Service Energy Sales (GWh)... - Figure - Number of General Service Accounts (Ending number, F0)... - Figure - Median SGS Consumption by Site Type... - Figure - MGS -Part Energy Rate Structure... - Page -ii

278 Chapter - General Service Rate Design Figure - Median MGS Consumption by Site Type... - Figure - F0 Bill Impacts less RRA BC Hydro MGS Proposal (Demand Per Cent Recovery)... - Figure - F0 Bill Impacts less RRA MGS Demand Sensitivity ( Per Cent Recovery)... - Figure - Illustrated LGS -Part Energy Rate Structure... - Figure - Median LGS Consumption by Site Type... - Figure -0 F0 Bill Impacts less RRA for LGS Flat Energy and Flat Demand, Demand Cost Recovery = ~0 Per Cent... - Figure - F0 Bill Impacts less RRA for LGS Flat Energy and Flat Demand, Demand Cost Recovery = ~ Per Cent... - Figure - F0 Bill Impacts less RRA BC Hydro LGS Proposal (Demand Per cent Recovery)... - Figure - F0 Bill Impacts less RRA LGS Demand Sensitivity (0 Per Cent Recovery)... - Figure - No MGS Proposed Rates Phase-In... - Figure - Three Year MGS Proposed Rates Phase-In... - Figure - No LGS Preferred Rates Phase-In... - Figure - Three Year LGS Preferred Rates Phase-In List of Tables Table - Existing SGS Rates (F0)... - Table - Alternative SGS Pricing Table - Annual bill impacts of an increase in the SGS Basic Charge to recover per cent of customer-related costs... - Table - Summary of Relevant Commission Order No. G-0-0 Direction... - Table - Existing MGS Energy Rates (F0)... - Table - Existing MGS Demand Charges (F0)... - Table - MGS Consumption by Site Type... - Table - MGS Accounts by Site Type Table - Alternative MGS Pricing (F0)... - Table -0 Screened-in MGS Alternatives for Stakeholder Engagement... - Table - Summary of F0 demand ratchet charges, MGS and LGS... - Table - MGS Rate Estimates for Rate Structure Transition in F Page -iii

279 Chapter - General Service Rate Design Table - F0 Illustrative Customer Bill BC Hydro MGS Proposal (Demand Per Cent Recovery)... - Table - Existing LGS Energy Rates (F0) Table - LGS Consumption by Site Type... - Table - LGS Accounts by Site Type... - Table - Cumulative Net Evaluated Conservation Savings: Gigawatt Hours per Year... - Table - Alternative LGS Pricing (F0) Table - Screened-in LGS Alternatives for Stakeholder Engagement... - Table -0 LGS Rate estimates given rate structure transition in F Table - F0 Illustrative Customer Bill BC Hydro LGS Proposal (Demand Per Cent Recovery)... - Page -iv

280 Chapter - General Service Rate Design. Introduction and Chapter Structure This Chapter outlines BC Hydro s proposals for SGS, MGS and LGS rates. As described in section. of the Application, General Service customers collectively can be thought of as BC Hydro s commercial and small industrial customers. The existing General Service rate structures are: 0 0 The SGS rate class which consists of General Service customers whose billing demand is less than kw. The SGS rate class is served under RS 00/0/0/ (collectively referred to at times as RS xx). The current default rate structure for SGS customers consists of a flat energy rate and a basic charge; The MGS rate class which consists of General Service customers whose billing demand is equal to or greater than kw but less than 0 kw and whose energy consumption in any -month consecutive period is equal to or less than 0,000 kwh. The MGS rate class is served under RS00/0/0/ (collectively referred to at times as RS xx). The existing default rate structures for MGS customers consists of a two-part energy rate (sometimes referred to as a baseline-based rate ), a three-step inclining block demand charge, a basic charge and a monthly minimum charge (referred to at times as the demand ratchet ); and The LGS rate class which consists of General Service customers whose billing demand is equal to or greater than 0 kw or whose energy consumption in any -month period is greater than 0,000 kwh. The LGS rate class is served under RS00/0/0/ (collectively referred to at times as RS xx). The existing default rate structures for LGS customers consists of a two-part energy rate, a three-step inclining block demand charge, a basic charge and a monthly minimum charge. Page -

281 Chapter - General Service Rate Design Figure - and Figure - illustrate the breakdown between the three General Service rate classes by GWh sales and number of accounts (F0). Figure - F0 General Service Energy Sales (GWh) SGS -, LGS - 0, MGS -, Figure - Number of General Service Accounts (Ending number, F0) MGS -, LGS -, SGS,, As identified in section.. of the Application, RDA Module will address: NIA (Zone II) and Bella Bella (Zone IB) rate design issues, including: RS (Small General Service (Under kw) Zone II) and RS /// Page -

282 Chapter - General Service Rate Design (General Service ( kw and Over) Zone II); and RS 00/0/0/ (collectively referred to at times as xx) as Zone IB customers are served on these rate schedules; and Commercial E-Plus rates (RS 0/0/0). This Chapter does not address the following rate schedules because they were the subject of recent Commission decisions (as discussed in section. of the Application): RS 0 (Shore Power Service Distribution); and RS (Net Metering Service). 0 Finally, this Chapter does not address: 0 RS (Distribution Service IPP Distribution Transportation Access) as this rate schedule relates to BC Hydro s Open Access Transmission Tariff (OATT) and accordingly is more appropriately addressed in an OATT proceeding; and RS (Power Service (Closed)). RS originated with one of BC Hydro's predecessor companies, BC Electric, in the 0s. RS is designed to encourage industrial developments, specifically electric arc furnaces. RS was closed in the 0s and was reviewed by the Commission in the RDA. The RDA Decision determined that BC Hydro may terminate rate availability when there is a change in ownership or use. There is currently one customer receiving service under RS. This rate was not reviewed in the 0 RDA stakeholder engagement process and therefore specific engagement with the customer did not occur. Accordingly, BC Hydro believes it would be inappropriate to eliminate RS at this time... Summary of BC Hydro Proposals Based on the inputs summarized in section.., BC Hydro proposes the following, to be effective April, 0: Page -

283 Chapter - General Service Rate Design SGS Rates Retaining the existing flat energy rate; and Increasing the SGS basic charge recovery of customer-related costs from approximately per cent to per cent. MGS Rates 0 Replacing the existing MGS two-part energy rate with a flat energy rate; Replacing the existing MGS three-step inclining block demand charge with a flat demand charge; and Increasing the demand charge recovery of demand-related costs from approximately per cent to per cent. LGS Rates Replacing the existing LGS two-part energy rate with a flat energy rate; Replacing the existing LGS three-step inclining block demand charge with a flat demand charge; and Increasing the demand charge recovery of demand-related costs from approximately 0 per cent to per cent... Summary of Stakeholder Engagement and Other Inputs Stakeholder input into BC Hydro s General Service rate proposals included: Five workshops on General Service rates: 0 Workshop a outlining the regulatory history of and issues associated with the MGS and LGS rate structures, and discussing the existing SGS rate structure; Workshop b setting out potential alternatives to the SGS, MGS and LGS rate structures; Page -

284 Chapter - General Service Rate Design 0 Workshop a identifying BC Hydro s preferred SGS rate structure and SGS basic charge cost recovery, and preferred MGS energy rate structure, and canvassing alternative MGS demand charge structures and cost recovery levels; Workshop b addressing alternative LGS energy rate structures and demand charge structures, the MGS/LGS demand ratchets, and potential General Service voluntary rate options for RDA Module ; and Workshop identifying BC Hydro s preferred MGS demand structure and cost recovery level, and BC Hydro s leaning at that time toward a LGS flat energy rate, flat demand charge and increased demand charge cost recovery. Face-to-face meetings with CEC on November 0, 0 and April, 0 to discuss potential LGS/MGS voluntary rate options for RDA Module ; Face-to-face meetings focused on MGS and LGS energy charge structure alternatives with the following organizations whose members are comprised of LGS and MGS customers: 0 May, 0 with BOMA, and LGS and MGS customer attendees; and May, 0 with BCFPA, CME and 0 LGS and MGS customer attendees. Refer to the Workshop a/b consideration memo found at Appendix C-A for additional detail. Other inputs included: Review of prior Commission decisions, including the 00 RDA Decision and Commission Order No. G-0-0 approving the 00 LGS Application NSA; Review of LGS, MGS and SGS customer characteristics; Two evaluation reports: ) the F0 LGS and MGS Evaluation Report referenced in section... of the Application and circulated to stakeholders Page -

285 Chapter - General Service Rate Design prior to Workshops a/b; and ) the Evaluation of the LGS and MGS Conservation Rates Calendar Years 0 and 0 report (0-0 LGS and MGS Evaluation Report) contained in the LGS and MGS Three-Year Report dated January, 0 (Three-Year Evaluation Report). Copies are found at Appendix C-A, and are discussed in sections. and.; Advice from E; 0 Jurisdictional review of Canadian electric utilities with market structures similar to BC Hydro (vertically integrated monopolies). Refer to Attachment to the Workshop a/b consideration memo at Appendix C-B of the Application; and Internal review of customer-related issues and complaints and rate administration issues as further described in this Chapter and Appendix C-D... Chapter Structure The remainder of this Chapter is structured as follows: 0 Section. Default SGS rate. Section.. identifies the SGS Proposal. Section.. provides background to the existing SGS rate, including discussion of SGS customer characteristics. Section.. contains the reasons for the SGS Proposal, together with a discussion of why an inclining block rate and a baseline-based energy rate are not viable alternatives. Section.. also provides BC Hydro s rationale for proposing an increase in the SGS basic charge cost recovery; Section. Default MGS rate. Section.. identifies the MGS Proposal. Section.. provides background to the existing MGS rates, including a summary of the relevant Commission direction and review of MGS customer characteristics. Section.. canvasses the two evaluation report findings concerning MGS, while section.. outlines the alternatives to the existing MGS rates analyzed with stakeholders. Section.. concludes this section Page -

286 Chapter - General Service Rate Design 0 0 with a discussion of BC Hydro s proposal to substantially simplify the existing MGS rate structure; Section. Default LGS rate. Section. is structured in the same way as section.. Section.. identifies the LGS Proposal. Section.. provides background to the existing LGS rates, including review of LGS customer characteristics. Section.. canvasses the two evaluation report findings concerning LGS, while section.. outlines the alternatives to the existing LGS rates analyzed with stakeholders, which differed from the MGS alternatives. Section.. concludes this section with a discussion of BC Hydro s proposal to substantially simplify the existing LGS rate structure; Section. provides BC Hydro s phase-in analysis for the proposed MGS and LGS rates. BC Hydro concludes that: () a three year phase-in period for BC Hydro s preferred MGS rate may have minor mitigation of bill impacts but the trade-off is a complex transition that will not give MGS customers certainty; and () a phase-in period for the preferred LGS rate is not an effective bill impact mitigation strategy; Section. contains the rationale for BC Hydro s request for a final order effective January, 0 approving a change in the pricing for new accounts that do not have a Historical Baseline (HBL) on RS xx or RS xx from / Pricing to 00 per cent Part Pricing; Section. discusses three requests related to assumed Commission approval of BC Hydro s MGS and LGS rate proposals: () terminating TS, the rules for prospective growth applications for modified LGS pricing, and transfer of any remaining LGS customers on TS modified pricing to RS xx effective April, 0; () dissolving the LGS and MGS control groups and related amendments to RS xx; and () terminating RS 00/0/0/ (collectively referred to at times as RS xx) and transferring Corix Multi-Utility Page -

287 Chapter - General Service Rate Design Services Inc. (Corix), the sole customer talking service under RS xx, to the LGS rate on April, 0; Section. summarizes the reasons why BC Hydro is proposing no changes to RS (Distribution Service IPP Station Service) at this time. 0. Small General Service.. BC Hydro s Small General Service Proposal BC Hydro proposes maintaining the existing SGS rate structure of a flat energy rate and a basic charge. BC Hydro seeks approval of a one-time increase to the RS xx basic charge to per cent recovery of customer-related costs attributable to the SGS class in the F0 COS study, and a one-time offsetting reduction of the energy rate, to maintain forecast revenue neutrality based on the SGS revenue target calculated using any applicable rate increases arising from the F0 RRA. The proposal results in the following illustrative SGS pricing assuming the F0 rate cap increase of. per cent: a flat energy rate for all kwh of approximately. cents/kwh and a basic charge of approximately. cents/day (F0)... Background The pricing elements of the existing SGS default rate structure are set out in Table -: Table - Existing SGS Rates (F0) Energy Rate (cents/kwh) Basic Charge (cents/day) The flat energy rate structure has been in place since ; prior to that a declining block energy rate was in effect. There has been no demand charge since at least. As noted at Workshop a, about per cent of SGS customers have residential-type meters and these meters do not have Measurement Canada Page -

288 Chapter - General Service Rate Design 0 approved demand functions. 0 The SGS basic charge currently recovers about per cent of customer-related costs allocated to the SGS rate class. There were no SGS restructuring proposals in the 00 RDA, nor was SGS rate design the subject of the 00 LGS Application. As a result there are no relevant Commission directions pertaining to the SGS rate. The SGS class consists of, accounts with total consumption of about, GWh (F0). There is a high degree of diversity within the SGS rate class; typical customers in the 0th to 0th percentile of class consumption ranges from about,000 to,000 kwh/year. As Figure - highlights, there are a variety of SGS site types and median SGS consumption varies widely by site type. Figure - Median SGS Consumption by Site Type 0 Per the Electricity and Gas Inspection Regulations, SOR/-; copy available at Although demand could be calculated using meter interval data, it cannot be used for billing as it is not recognized as demand processed legal unit of measurement. Refer also to slide 0 of the Workshop a presentation at Appendix C-A to the Application. Page -

289 Chapter - General Service Rate Design.. Small General Service Rate and Options Reviewed There is no better alternative to the existing SGS rate. It is easy to understand and simple to administer, and generally reflects LRMC in its flat energy structure. The sole issue identified through stakeholder engagement is whether BC Hydro should increase the SGS basic charge recovery of customer-related costs from about per cent to per cent. The alternatives brought forward in the 0 RDA are summarized in Table -. Table - Alternative SGS Pricing Pricing Element (F0) BC Hydro Proposal (Increase basic charge to % of customer-related costs) Status Quo Energy rate (cents/kwh).0. Basic charge (cents/day) SGS Rate Structure At Workshop a BC Hydro stated that it saw no strong basis to depart from the existing SGS rate structure. The flat energy rate of.0 cents/kwh (F0) is within BC Hydro s energy LRMC range (upper bound is. cents/kwh (F0)). BC Hydro rejects a demand charge for the SGS rates. As noted in section.. of the Application, almost all surveyed Canadian electric utilities do not bill smaller general service customers separately for demand. The main distinguishing rate design feature between larger general service rates and rates for the smallest class is that the smaller class is typically considered too small to justify the expense and added complexity of demand meters and rate structures. Refer to Attachment to the Workshop a/b consideration memo (found at Appendix C-B) for BC Hydro s Canadian jurisdictional review of general service rates. No stakeholder suggested that the SGS rate structure should have a demand charge. As indicated in section.. of the Application, customer understanding and acceptance/practical and cost-effective to administer is one of BC Hydro s three prioritized rate design criteria. A demand charge would make the SGS rate more complex to understand. A Page -0

290 Chapter - General Service Rate Design SGS demand charge would also require a demand meter which not all SGS customers have. The requirement for a demand meter on all SGS customers makes the demand charge less practical and cost-effective to administer. A flat energy rate is common across comparable small general service rate classes of surveyed Canadian electric utilities; declining block energy rates are also common. BC Hydro identified two potential energy rate alternatives to the existing SGS flat energy rate. Neither alternative is viable: 0 0 An inclining block rate would not be easy to implement in a fair and reasonable manner given the overall heterogeneity of the SGS rate class, as highlighted in Figure -. Absent an individual customer baseline-based rate structure, there are no criteria to support a one-size fits all threshold for a SGS inclining block rate that would be a fair reflection of typical SGS customer consumption. There is no jurisdictional support for an inclining block rate for smaller general service customers. CEC opposes an inclining block rate for the SGS rate class for the reasons set out by BC Hydro; A baseline-based energy rate for SGS customers is too complex and not appropriate as a SGS default rate structure at this time, given the identified problems with the baseline-based MGS and LGS rate structures discussed in sections. and.. No other surveyed North American electric utility has implemented baseline-based rates for general service customers. At Workshop a, BC Hydro indicated that no SGS rate structure issues had been identified through the 0 RDA stakeholder engagement process. There was general agreement among stakeholders that there is not a strong basis to depart from the existing SGS rate structure. As noted in section... of the Application, Ontario has a different market structure than B.C. Nevertheless, as suggested by Commission staff, BC Hydro surveyed Ontario for residential and general service rate purposes. Ontario implemented an inclining block rate for smaller general service customers but is in the process of phasing out the inclining block rate. Page -

291 Chapter - General Service Rate Design SGS Basic Charge Cost Recovery In response to Workshop a-related stakeholder feedback, at Workshop a BC Hydro reviewed the impacts of increasing the basic charge recovery of customer-related costs from about per cent to a level comparable to the RIB rate basic charge customer-related cost recovery of about per cent (F0 COS). As set out in Table - in Chapter, Residential and SGS customer cost allocation is similar, as are energy and demand cost allocations. BC Hydro concluded that the RIB rate basic charge customer-related cost recovery level is the appropriate reference. To inform stakeholder comment on this topic at Workshop a, BC Hydro assessed bill impacts. Forecast F0 bill impacts resulting from increasing the SGS basic charge cost recovery to per cent and the offsetting reduction in the energy rate (as a result of forecast revenue neutrality) are set out in Table - in section..... BC Hydro Proposal and Stakeholder Engagement CEC, which represents customers taking service under SGS rates, acknowledges that the increase in basic charge recovery of customer-related costs will improve fairness. AMPC, BCOAPO and FNEMC also support this position. Only COPE does not support an increase to the SGS basic charge cost recovery. COPE maintains that the reduction in the energy rate, although small, is directionally counter to energy conservation. In BC Hydro s view, there are no rate design objectives to be traded off. Increasing the SGS basic charge recovery to per cent of customer-related costs aligns with the Bonbright fairness criterion by matching embedded cost recovery in rates with cost causation. Moreover, there is no conflict with the economic efficiency criterion: The predicted increase to the SGS basic charge results in a small reduction to the SGS energy rate (from. cents/kwh to.0 cents/kwh (F0)) which remains reflective of the energy LRMC; Page -

292 Chapter - General Service Rate Design Any reduction in natural conservation (at the default -0. per cent elasticity BC Hydro assumes for RRA rate increase-related price responsiveness) would be very small. 0 0 Illustrative Simulations While BC Hydro is filing for a SGS rate design change in F0 (effective April, 0), the RDA stakeholder engagement-related simulation of SGS rate estimates and bill impact assumed a one-time rate design change in F0 for illustrative purposes. The actual rates in F0 will be finalized through the F0 RRA. Table - lists the key calculation features of the alternative rate structures, and the rates estimated for F0. All rates are modelled to be revenue neutral to the status quo SGS rates; that is, all alternatives recover the same target revenue of $ million given a consumption forecast of, GWh. Further details about the modelling calculations are found in Appendix H-A. Table - highlights that the bill impacts of the proposed basic charge cost recovery increase are minimal to the majority of SGS customers on both a percentage and absolute basis. The basic charge is a relatively high percentage of the total bill for only a very small percentage of SGS customers. The analysis found that the bill difference is below 0 per cent for almost all SGS customers, and below per cent for 0 per cent of SGS customers. Page -

293 Chapter - General Service Rate Design Table - Annual bill impacts of an increase in the SGS Basic Charge to recover per cent of customer-related costs Percentile by Consumption Annual kwh F0 Annual Bill Status Quo ($) F0 Annual Bill BC Hydro Proposal ($) Annual Bill Difference between F0 BC Hydro Proposal and F0 Status Quo ($) Annual Bill Difference between F0 BC Hydro Proposal and F0 Status Quo (%) Bill Impact (%) of F0 BC Hydro Proposal (vs. F0 Rates) Min 0,00 0 0, 0, 0,,, 0,,, ,,0, ,,, ,,, ,,, Max,0,0, Medium General Service.. BC Hydro s Medium General Service Proposal BC Hydro is proposing a new substantively simplified rate structure for customers who take service under RS xx: a flat demand charge established to recover approximately per cent of BC Hydro s demand-related costs attributable to the MGS rate class in the F0 COS study and a flat energy rate established to maintain forecast revenue neutrality based on the MGS revenue target calculated using any applicable rate increases arising from the F0 RRA. The MGS Proposal would result in the following illustrative charges in F0: a flat energy rate for all kwh of approximately. cents/kwh; a flat demand charge of approximately $. per kw (reflecting BC Hydro s preferred per cent level of Page -

294 Chapter - General Service Rate Design 0 cost recovery); and a basic charge of about. cents per day. BC Hydro proposes to continue with the current monthly minimum charge definition. These illustrative charges are calculated assuming the F0 rate cap increase of. per cent. Final F0 MGS pricing will be determined by the F0 RRA decision. As set out in section.., BC Hydro proposes a one-time transition on April, 0 (F0) from the current MGS rate structure to BC Hydro s proposed MGS rate structure... Background The MGS rate class consists of, accounts with total consumption of about, GWh (F0). The existing MGS default rate structures are: 0 A two-part energy rate approved in 00 pursuant to Commission Order No. G-0-0 on June, 00 as an outcome of the 00 LGS Application NSA. Prior to implementation of the existing two-part energy rate, MGS customers were served under a declining block energy rate as part of a single large general service class ( kw and over). All MGS customers were transitioned to the existing rate by April, 0 (refer to section...); A three-step inclining block demand charge (refer to section...). BC Hydro has had an inclining block demand charge since at least. The five-step inclining block was changed to a four-step inclining block charge in, and changed to the existing three-step structure in 0; and A basic charge and a monthly minimum charge. The current MGS basic charge is. cents/day. The MGS monthly minimum charge is 0 per cent of the highest maximum demand charge billed in any billing period in the on-peak At Workshop a Commission staff asked BC Hydro what the rationale was for the inclining block demand charge, and BC Hydro responded that it was not able to determine the rationale; refer to Attachment to the Workshop a/b consideration memo, Part, BC Hydro response to Question. The ratio of charges for demand greater than 0 kw as compared to for demand between kw and 0 kw has remained. since 0. Page -

295 Chapter - General Service Rate Design period of November through March during the immediately preceding eleven billing periods. There is one Commission Order No. G-0-0 direction that is relevant to RDA Module as noted in Table -. Table - Summary of Relevant Commission Order No. G-0-0 Direction Direction BC Hydro is to file, within months of the Implementation Date of January, 0, a report which addresses the issues outlined in paragraph of the NSA Status The Three-Year Evaluation Report referenced in section.. was filed with the Commission in compliance with the Commission Order No. G-0-0 to respond to paragraph of the 00 LGS Application NSA requiring BC Hydro to report on, among other items: whether the control groups are still adding value; whether there is any evidence of customers opening new accounts to avoid exposure to the Part rate under the two-part rate structure; and estimated energy savings to date. The Three-Year Evaluation Report is discussed in the context of the LGS rate options in section.. as it is more relevant to the LGS options than the MGS options for the reasons set out in section Existing MGS Energy Rate The existing MGS energy rates are set out in Table -. Table - Existing MGS Energy Rates (F0) Part Energy Rate Tier (cents/kwh). Part Energy Rate Tier (cents/kwh).0 Part Energy Rate (cents/kwh).0 0 As described in section... of the Application, as part of the 00 LGS Application BC Hydro proposed a flat energy rate for the MGS rate class. BC Hydro emphasized the novelty of the two part baseline-based energy rate it was proposing for the LGS rate class and stated the following with respect to extending a baseline-based rate to the MGS rate class: Page -

296 Chapter - General Service Rate Design 0 the specific two part rate proposed for the new LGS class is quite complex The novelty and complexity of BC Hydro s proposed two part rate means it would be much more challenging to manage, and therefore much riskier to both BC Hydro and its customers, if it were to be applied at the outset to all,000 accounts, rather than to the,000 [LGS] accounts with demand of 0 kw or greater. The two-part energy rate structure was approved for the MGS class under the terms of the NSA. The overarching objective of the two-part rate structure was to provide MGS customers with an efficient price signal to induce energy conservation. Figure - illustrates the MGS two-part energy rate structure. Figure - MGS -Part Energy Rate Structure Energy Charge (cents / kwh) Part Part - 0% + 0% Part Tier Part Tier LRMCbased Credit LRMCbased Charge Historical Baseline Monthly Consumption Monthly Consumption (kwh) Last,00 kwh of Baseline The Part Tier energy rate applies to the last,00 kwh of an individual customer s historically determined monthly consumption level, or baseline (HBL), BC Hydro 00 LGS Application, page -; 00_0_%0APPL_0LGS.pdf. Page -

297 Chapter - General Service Rate Design 0 0 and the Part Tier energy rate applies to all remaining baseline consumption. The Part energy rate is a credit on the difference between actual billed consumption and baseline consumption when consumption is lower than baseline and a charge on the difference between actual consumption and baseline consumption when consumption is higher than baseline. The LRMC-based credits or charges under the Part energy rate are limited to differences of plus or minus 0 per cent of baseline consumption, defined as the Price Limit Band (PLB). Consumption differences beyond the PLB receive credits or charges under the applicable Part energy rates. For further illustration of the mechanisms of the MGS two-part rate under example customer consumption levels, refer to slides to of the Workshop a presentation at Appendix C-A to the Application. The MGS two-part energy rate and the LGS two-part energy rate described in Section.. are atypical rate structures; to BC Hydro s knowledge, they are the only baseline-based default rates for general service customers in North America. As noted in section..., other Canadian electric utilities serve their general service customers through either a flat or declining block energy rate. As discussed in section.., the key issue with the existing MGS two-part energy rate is that it has not met the purpose for which it was intended. The existing MGS energy rate structure does not provide a clear price signal for conservation and is poorly understood by customers. The result is that BC Hydro has not been able to detect any conservation savings to date and that BC Hydro cannot count on and does not forecast any conservation savings going forward.... Existing MGS Demand Charge BC Hydro has a three-step inclining block demand charge for the MGS rate class as depicted in Table -. Page -

298 Chapter - General Service Rate Design Table - Existing MGS Demand Charges (F0) First kw of Billing Demand per Billing Period (Tier ) Next kw of Billing Demand per Billing Period (Tier ) All additional kw of Billing Demand per Billing Period (Tier ) $0.00 per kw $.0 per kw $0. per kw 0 Most jurisdictions have flat or declining demand charges. The key issue associated with the existing MGS three-step inclining block demand charge is that it does not align with BC Hydro s cost to serve MGS customer peak demand, which is generally flat on a $/kw basis.... MGS Customer Characteristics Table - shows that of the site types identified in BC Hydro s F0 billing data, the top ten site types have per cent of the consumption in the class. In particular, Offices, Non-Food Retail and Restaurants are the highest consuming sectors, with about per cent of total class consumption. Table - MGS Consumption by Site Type Site Type Percentage of class consumption Offices Non-Food Retail Restaurants Other Commercial Hotels Warehouses Residential-High-Rise Apt Common Area Public School Industrial-Light Manufacturing Food Retail Other Seventy-eight per cent of accounts in the MGS Class are also represented by the top ten site types (Table -). In particular, Offices, Non-Food Retail, and Restaurants site types stand out as the sectors with the largest portion of accounts, at per cent of all accounts. Page -

299 Chapter - General Service Rate Design Table - MGS Accounts by Site Type Site Type Percentage of accounts Offices 0 Non-Food Retail Restaurants 0 Other Commercial Warehouses Public School Hotels Industrial-Light Manufacturing Industrial-Heavy Manufacturing Residential-High-Rise Apt Common Area Other The MGS class is heterogeneous in terms of consumption. Consumption also tends to vary substantively by site type, as shown by the variations of the medians for each site type in Figure -. In terms of annual load factor, about 0 per cent of the class has a load factor between 0 per cent and 0 per cent (refer to the Workshop a presentation materials). Refer to slides to,, and to in particular; the Workshop a presentation is found at Appendix C-A. Page -0

300 Chapter - General Service Rate Design Figure - Median MGS Consumption by Site Type 0.. MGS Two-Part Energy Rate Evaluation Reports... Methodology As noted in section.., the 0-0 LGS and MGS Evaluation Report and the F0 LGS and MGS Evaluation Report were inputs into BC Hydro s assessment of the existing MGS and LGS rates and the development of alternative rate structures. Copies of both evaluation reports are found at Appendix C-A of the Application. The 0-0 LGS and MGS Evaluation Report was filed with the Commission as part of the Three-Year Evaluation Report referenced in Table -. The results of both 0-0 LGS and MGS Evaluation Report and the F0 LGS and MGS Evaluation Report were discussed at Workshop a. The 0-0 LGS and MGS Evaluation Report and F0 LGS and MGS Evaluation Report provided comprehensive evaluations of the impacts and customer response to the MGS and LGS rates. The evaluation of electricity savings was achieved through the use of a randomized control trial research design. This approach is generally viewed as the most accurate method for estimating net Page -

301 Chapter - General Service Rate Design 0 0 impacts, and it is widely accepted in the natural and social sciences as the gold standard of research designs. Secondary analysis of conservation at twelve key account customer sites was also conducted using customer level regression models. Awareness, understanding, acceptance and response to the rates across all LGS and MGS customers were evaluated using three customer surveys: the first in 00, the second in 0 and the a third in 0. Each survey generated hundreds of responses and these respondents were broadly representative of the population. In addition, customer focus groups and key account manager interviews were completed to gain a deeper understanding of individual customer experiences with the LGS and MGS rates. For example, the F0 LGS and MGS Evaluation Report utilized customer surveys, interviews with BC Hydro key account managers, and four 0-minute customer focus groups made up of LGS and MGS customers (these September 0 focus groups sessions are summarized in section... of the Application). For further detail on the focus group methodology, refer to page of Appendix F of the F0 LGS and MGS Evaluation Report at Appendix C-A.... Results The evaluation of these multiple lines of evidence indicated that the customer response to the MGS two-part energy rate was considerably less than forecast. Awareness and demonstrated understanding of the MGS rates was low. Evaluated net energy savings for MGS rate were not statistically different than zero in 0, 0 and F0, relative to calendar year 00, as compared to a forecast conservation savings of about 0 GWh/year. As set out in the F0 LGS and MGS Evaluation Report: National Renewable Energy Laboratory, U.S. Department of Energy, Estimating Net Saving: Common Practice September 0, pages & ; Each focus group consisted of LGS and MGS accounts, but across all groups, LGS and MGS customers were similar in their awareness, understanding and opinions expressed. The MGS forecasted conservation savings were based on the overall commercial customer price elasticity of -0. (consisting of rate structure induced conservation and natural conservation) based on the jurisdictional assessment set out in Appendix E to the BC Hydro s 00 Long-Term Acquisition Plan, with adjustments. Page -

302 Chapter - General Service Rate Design 0 About per cent of MGS customers correctly identified their rate structure out of four possible rate structure selections; and Results from the focus groups indicate low demonstrated understanding of the two-part energy rate. Out of focus group participants, only a few were able to correctly explain, unprompted, how the two-part rate worked. Two main areas of confusion are the concept and calculation of a rolling HBL, and the value and mechanism of the Part energy charge or credit; knowledge of these concepts are critical to understanding how changes in electricity consumption translate into bill impacts or energy savings. Most commercial customers reportedly look at their electricity bills, but this is mainly in regards to total dollar amount. The rate structures were rarely mentioned as a motivator for conservation. 0.. Options Reviewed In BC Hydro s view, there are two MGS rate structure alternatives for consideration in this Application, as developed and reviewed with stakeholders:. A flat energy rate and a flat demand charge; and. The status quo two-part energy rate and three-step inclining block demand charge for comparison purposes. In addition, BC Hydro carries forward in this Application an increase to the flat demand charge under alternative () above to recover per cent of demand-related costs allocated to the MGS class in the 0 COS study, an increase from the existing per cent recovery under the current demand charge. The MGS rate alternatives brought forward into the 0 RDA from the stakeholder engagement processes are summarized in Table -. Page -

303 Chapter - General Service Rate Design Table - Alternative MGS Pricing (F0) Pricing Element Status Quo MGS Rates BC Hydro Proposal (% demand-related cost recovery) Energy rate (cents/kwh) Demand charge ($/kw) Basic charge (cents/day) Part, Tier (T) : Part, T: Part : T: T: T: Sensitivity on BC Hydro Proposal (existing demand-related cost recovery ~%) The next two sub-sections summarize the processes employed to develop (section...), and review and narrow (section...) the alternatives using stakeholder and other inputs. Details are contained in Appendix C-D.... Alternatives Development At the September 0 focus groups sessions, several MGS (and LGS) participants suggested as alternatives a flat energy rate or a simple inclining block rate, which would both entail elimination of the baseline-based rate structure. This was the starting point, together with the jurisdictional review, for the development of three broad approaches to MGS (and LGS) energy rate design:. Existing baseline-based rate, which is an economically efficient rate intended to deliver an efficient level of energy conservation by exposing customers to an energy LRMC price signal. Within this category a number of options were developed to address MGS customer concerns about the complexity of the MGS rate and its impact on growth. These include flattening the Part energy rate;. Inclining block rate, such as the RIB rate; and. Flat energy rate, which would deliver energy savings through customer response to RRA rate increases (referred as natural conservation ). Virtually all Page -

304 Chapter - General Service Rate Design 0 0 jurisdictions surveyed to date adopt flat rates for their general service customer classes, and rely on DSM programs and codes and standards to deliver energy savings. BC Hydro used its jurisdictional assessment and cost of service to develop three broad approaches to MGS demand charge structure:. Existing three-step inclining block demand charge;. Two-step inclining block demand charge. This alternative would retain the current zero Tier and flatten the Tier and Tier into a single Tier rate. A number of Canadian electric utilities (FortisBC for its Commercial class, SaskPower, Manitoba Hydro, Hydro Quebec for its Small Power class, New Brunswick Power) have an inclining two-step demand charge where the first step up to a kw level (typically 0 kw) is $0;. Flat demand charge. A number of Canadian electric utilities (FortisBC for its Large Commercial class, YECL, Hydro Quebec for its Medium Power and Large Power classes, Nova Scotia Power) have flat demand charges. Through modelling in preparation for Workshop a/b it became apparent that the energy rate and demand charge structures could not be reviewed in isolation due to bill impacts. This observation is explained in section Screening of Alternatives and Stakeholder Engagement The review and screening of MGS alternatives occurred in four phases. Phase, Initial Internal Screening This was necessary given the large number of options, some of which differed only in minor ways, which would frustrate stakeholder engagement if they were all carried forward for detailed review. Screening was accomplished by modelling, feasibility assessment and internal review using the criteria of high bill impacts, suitability for a heterogeneous group of customers and/or performance against the eight Bonbright Page -

305 Chapter - General Service Rate Design rate design criteria, as described in Appendix C-D. A number of potential alternatives were screened out. For example: 0 On the demand charge side, a demand charge recovery of 00 per cent of demand-related costs, as it produced excessive bill impacts; On the energy rate side, with input from E, it was determined that an inclining block rate would not be feasible given that it would be very difficult to set a fair and reasonable threshold between Tier and Tier pricing for the heterogeneous MGS rate class; and Also on the energy rate side, an alternative that retained the baseline and adjusted the Part rate structure to provide for credit-only pricing, and not charges. This alternative results in Part energy rate increases to all customers and only some growing customers substantively benefitting, while not mitigating any baseline-related complexity issues. 0 Stakeholders requested a list of screened out alternatives and this was provided in the summary notes for Workshop b to inform feedback. In feedback concerning Workshop b, participants generally agreed that the criteria BC Hydro used to screen out alternatives are appropriate. By extension, most participants agreed that screened-out alternatives should not be advanced for further review. The result of the initial internal screening was to reduce the number of alternative MGS rate designs from to the five alternatives shown in Table -0. Refer to Attachment to the Workshop b summary notes, which in turn are part of Attachment to the Workshop a/b consideration memo at Appendix C-A. Page -

306 Chapter - General Service Rate Design Table -0 Screened-in MGS Alternatives for Stakeholder Engagement MS- MS- MS- MS- MS- Screened-in MGS Alternative (MS) Status Quo Energy Status Quo Demand Flat Part Energy Status Quo Demand Status Quo Energy Flat Demand Flat Part Energy Flat Demand Flat Part Energy, No Part Energy Flat Demand Flatten Part- Energy Rate Yes Yes Flatten Demand Charge Not applicable Yes Yes Remove Part Energy Rate (No Baseline) Yes Yes Yes 0 Phase, Workshop b: Focus on MGS Energy Rate Structures The categories of alternatives in Table -0 were reviewed with stakeholders at Workshop b. BC Hydro described alternatives MS- and MS- as illustrative given that the component rate structures should properly be considered together in evaluating the trade-offs between alternatives. The bill impacts of the energy rate alternatives and demand charge alternatives considered in isolation impacted different types of customers, based on consumption and load factor; these bill impacts are generally offset through coincident flattening of energy rates and flattening of demand charges across all three tiers. BC Hydro identified that one drawback of MS- is that some customers experience large bill impacts, but that relative to the existing MGS rate, the benefits of MS- above are: A minor improvement in customer understanding and acceptance given that flattening the energy and demand rates simplifies the rate structure; An improvement in fairness between customers within the MGS class by aligning cost recovery with the pattern of cost causation to serve MGS Page -

307 Chapter - General Service Rate Design customers. The cost to serve a General Service customer s peak demand is generally flat on a $/kw basis; and Demand charge alignment with the rate design practice of other Canadian electric utilities; a three-step inclining block demand charge is unique to BC Hydro. In comparison to MS-, BC Hydro described the additional benefits of MS- as: 0 Substantial improvement in customer understanding and acceptance by removing the baseline-based rate of the existing MGS rate s complexity; and BC Hydro believes that the substantial gain in customer understanding can be achieved with: only a minor loss in economic efficiency because the MS- energy rate is still reflective of LRMC; and minor bill impacts from removal of the Part energy rate since on implementation the baseline structure by its design controlled for bill impacts to individual customers. 0 BC Hydro sought input concerning the alternatives set out in Table -0, and in particular whether to retain the baseline and attempt to refine the existing structure to address known issues. Stakeholders generally concluded that the existing MGS energy rate does not send a clear price signal for conservation because it is poorly understood. A portion of those customers who did understand the design did not like it because they highlighted the detrimental impacts of the two-part rate structure on customer business expansion; for example, AMPC stated that the inability to annually adjust baselines to reflect changes in use is a significant problem for a heterogeneous class, and thus a flat energy rate may be more useful in providing a conservation price signal than a tiered energy rate. Commission staff noted that the existing MGS rate is administratively complex and has failed to generate conservation savings. Loblaws, with mostly LGS but with some MGS accounts, was the only MGS customer at Workshops a/b preferring the existing MGS energy rate. In contrast, Page -

308 Chapter - General Service Rate Design 0 0 TransLink, also with mostly LGS but some MGS accounts, proposed that BC Hydro only carry forward MGS alternatives that do not retain the baseline. TransLink believes incentives for MGS class energy efficiency are best provided through DSM programs. The May 0 BOMA and BCFPA/CME/key accounts sessions yielded the following results: of the feedback forms submitted by attendees favoured the MS- MGS flat energy rate alternative with many emphasizing DSM programs as the better vehicle for conservation; three preferred the MS- flatten the energy charges but retain the baseline alternative; and two favoured the existing MGS rate. In response to stakeholder feedback, BC Hydro established a preference for a flat energy rate with no baseline for the MGS class. This preference was also based on the results of the two evaluation reports discussed in section.., the jurisdictional review, discussions with E regarding both the empirical results and the survey results and BC Hydro s review of complaints lodged by MGS customers with BC Hydro (refer to Appendix C-D for a summary). The general theme of the complaints was that the current MGS rate inhibits growth because the first 0 per cent of consumption above the baseline is priced at the higher Part rate. Phase, Workshop a: Focus on MGS Demand Charge Structures and Cost Recovery In its Workshop b feedback, both CEC and Commission staff noted that the current level of demand charge cost recovery (about per cent) could be increased. Accordingly, at Workshop a BC Hydro reviewed two MGS demand charge-related items:. The three demand charge structure alternatives. The main issue was whether the two-step inclining block demand charge should be brought forward for RDA purposes in addition to the flat demand charge and the existing three-step inclining block demand charge. BC Hydro highlighted that the two-step inclining block demand charge would not substantially differ from the existing demand charge with respect to fair cost recovery because few MGS customers typically Page -

309 Chapter - General Service Rate Design 0 0 face Tier of the existing demand charge (Tier is the highest third step of the existing demand charge, for monthly demand greater than 0 kw). For the same reason, flattening only Tier and Tier into a single tier results in demand charge pricing similar to existing demand charge pricing given revenue neutrality. The result is that the MGS two-step inclining block demand charge alternative does not generally offset the bill impacts of the MGS flat energy rate. There was a general consensus among stakeholders that the MGS flat demand charge is superior to the existing MGS demand charge and the MGS two-step inclining block demand charge structures. The MGS single flat demand charge will improve fairness between customers; a single demand charge is better aligned with the cost to serve a General Service customer s peak demand. A flat demand charge also simplifies the rate structure, which will improve customer understanding and acceptance relative to the existing MGS demand charge structure.. An increase in demand charge recovery of demand-related costs from per cent to per cent. The per cent cost recovery level was arrived at by targeting an increase that would result in a flat energy rate that remained generally reflective of the energy LRMC, thereby balancing the competing Bonbright economic efficiency criterion. There is no single correct level of demand charge cost recovery and demand charge cost recovery cannot be targeted in isolation from other factors. The effect of an increase to per cent cost recovery is to more evenly offset and distribute the bill impacts of BC Hydro s preferred MGS flat energy rate and MGS flat demand charge among customers with differing load factors and consumption levels. This result is illustrated by comparing the per cent and per cent cost recovery bill impacts in Figure - and Figure - in section... There was no general consensus among stakeholders with respect to the level of MGS demand charge recovery of demand-related costs. Page -0

310 Chapter - General Service Rate Design 0 0 Phase, Workshop a/b Consideration Memo: MGS Demand Ratchet BC Hydro s preferred MGS demand ratchet is addressed in section. of the Workshop a/b consideration memo found at Appendix C-B. The demand ratchet ensures that customers with high winter consumption and low summer consumption pay a share of BC Hydro s costs to maintain its infrastructure related to serving peak demand. The demand ratchet was reduced from per cent to 0 per cent in April 0. AMPC and Commission staff sought more information concerning whether the MGS demand ratchet should remain at 0 per cent of the highest maximum demand charge billed in any billing period in the on-peak period of November through March during the immediately preceding eleven billing periods or be increased to match the per cent level set out in RS. In section. of the Workshop a/b consideration memo, BC Hydro surveyed the bills of customers that incur demand ratchet charges. To put the MGS and LGS demand ratchets in context, Table - provides summary information on MGS (and LGS) demand ratchet charges in F0 (F0 and F0 data are comparable); the table highlights that the number of MGS and LGS customers incurring demand ratchet charges is relatively few in comparison to the total number of customers in each class. The amount of MGS and LGS demand ratchet revenue is a very small percentage of total MGS and LGS class revenue. Table - Summary of F0 demand ratchet charges, MGS and LGS F0 Demand Ratchet Charge MGS LGS Total Customers Incurring Demand Ratchet Percentage of Total Customers of Class ~ ~ Total Demand Ratchet Revenue $, $,,0 Percentage of Total Revenue ~ 0.0 ~ 0. The change to the demand ratchet was approved by BC Hydro s Board of Directors in February 0 as part of a package of electric tariff revisions. The reason for the change was not noted. Page -

311 Chapter - General Service Rate Design 0 While an increase in the level of the demand ratchet to per cent of peak monthly demand would provide consistent rate treatment between BC Hydro s MGS and LGS classes and RS customers, BC Hydro prefers to maintain the level of the MGS and LGS demand ratchets at the existing level of 0 per cent of peak monthly demand given that the level of the demand ratchet is not a major issue with customers... BC Hydro Proposal and Stakeholder Engagement At Workshop a, BC Hydro identified its proposed MGS rate, and focused on its proposal to increase demand charge recovery of demand-related costs given the lack of consensus from Workshop a on this issue: 0 BC Hydro acknowledged that as a result of the proposed increase to the demand charge, the MGS flat energy rate under its proposal drops below the lower bound of the energy LRMC range (F0: MGS flat energy rate is. cents/kwh and the lower end of the energy LRMC range is. cents/kwh). In its Workshop a/b consideration memo, BC Hydro adopted the perspective of AMPC that the energy LRMC should not be relied on with a false precision. BC Hydro regards the MGS flat energy rate under its proposed demand charge cost recovery increase to be reflective of the energy LRMC; BC Hydro reviewed that under the existing level of demand charge cost recovery, the weight of the benefit (in terms of bill impacts) from a move to its preferred MGS energy and demand rate structures would tend toward customers who consume near the median in terms of consumption and load factor. The weight of the burden would tend toward high load factor with high consumption customers, as well as low load factor with low consumption customers. The effect of an increase in demand charge recovery of demand-related costs is to more evenly distribute the bill impacts of BC Hydro s Page -

312 Chapter - General Service Rate Design 0 MGS rate structure proposal among customers with differing load factors and consumption levels. These impacts are discussed below. Illustrative Simulations Table - lists the key calculation features of the alternative rate structures, and the MGS rates estimated for F0. All F0 rates are modelled to be revenue neutral to the status quo MGS rate; that is, all alternatives recover the same target revenue of $ million given a consumption forecast of, GWh and 0. GW of billed demand. Illustrative F0 rates are used in this Chapter for the bill impact simulations. BC Hydro is filing for the rate structure change in F0 (effective April, 0), and the actual rates for F0 will be finalized through the F0 RRA Commission decision. Further details on the modelling calculations are shown on Appendix H-A. Page -

313 Chapter - General Service Rate Design Table - MGS Rate Estimates for Rate Structure Transition in F0 MGS F0 F0 Status Quo F0 BC Hydro Proposal (% Demand Recovery) F0 Sensitivity (% Demand Recovery) Basic cents/day.... Demand $/kw T T.0. T Energy cents/kwh T. 0. T.0. Part Minimum.0. Key calculation features of alternatives to Status Quo. Flat. Flat. Flat. Flat Flat Energy Rate Flat Demand Charge Basic Charge is increased by RRA Revenue recovered from demand portion of the rate in F0 is escalated by a factor of. from status quo, to yield a projected cost recovery from the demand portion of the rate of per cent Flat Energy Rate Flat Demand Charge Basic Charge is increased by RRA Revenue recovered from demand portion of the rate is same as that of Status Quo... Bill Impacts under BC Hydro s Proposed MGS Rate Structure Table - shows the difference in the annual bills under BC Hydro s proposed MGS rate structure as compared to the status quo MGS rate for a typical MGS customer with consumption of,0 kwh per year and billed demand of kw each month, which is near the median in terms of consumption and load factor. Under the proposed MGS rate structure, such customers tend to be better off when compared to the status quo MGS rates. Due to the elimination of the baseline, the amount of Page -

314 Chapter - General Service Rate Design benefits would be slightly lower for customers that experienced a reduction in consumption, due to removal of Part energy rate credits, and slightly higher for customers that experienced an increase in consumption, due to avoidance of Part energy rate charges. Table - F0 Illustrative Customer Bill BC Hydro MGS Proposal (Demand Per Cent Recovery) Customer Scenario Consume at baseline +% from baseline -% from baseline Demand Charge ($) Energy Charge ($) Basic Charge ($) Total Bill ($) SQ Bill ($) Variance ($),,,, - (-%),,,,0 -,0 (-%),,,,0 - (-%) 0 The bill impact statistic compares the change in annual bills of each customer account from F0 to F0, given identical consumption in energy and demand and a baseline that is equal to consumption: 0 Under the status quo MGS rate, the bill impact is at about the RRA rate increase ( per cent) for all MGS customers; Under the MGS Proposal, the 0 th to 0 th percentile bill impact for F0 ranges from zero per cent to per cent, with the full range between - per cent to + per cent. This trend is similar across the major sectors. About per cent of customers are expected to experience bill impacts over 0 per cent. Of these customers (the per cent), the highest bill impact in terms of nominal dollars is about $,000 (a bill impact of per cent). Overall, about half of the MGS customers ( per cent) are better off in terms of bill impacts under the MGS Proposal as compared to the status quo. Figure - shows the impact of rate structure change in the transition year, net of RRA rate increases, under the MGS Proposal. The distribution shows that the typical Page -

315 Chapter - General Service Rate Design customers (as shown by the blue circle) are mostly better-off. The larger consuming customers tend to have small bill impacts during the transition. The customers experiencing the highest bill impact are characterized by low consumption and low load-factor, with bill impacts mostly triggered by having demand charges for all kw. Figure - F0 Bill Impacts less RRA BC Hydro MGS Proposal (Demand Per Cent Recovery) Red underline indicates bill impact higher than RRA Blue oval indicates typical customers, who are between the 0 th and 0 th percentile by annual consumption and load 0 *Note: Very high sensitivity on low load factor, lower consumption customers due to T kw charge.... MGS Demand Sensitivity Rate Structure ( per cent Recovery) As a comparison, BC Hydro modelled a MGS Demand Sensitivity where demand cost recovery is maintained at per cent (status quo). Comparing Figure - with Figure -, the analysis shows: 0 The typical customers (inside the oval) are slightly better off under the MGS Demand Sensitivity than the MGS Proposal, as are the customers with low consumption and low load factor; High load factor and high consumption customers are worse off under the MGS Demand Sensitivity; The range of bill impact for the typical customers (those between the 0 th percentile to 0 th percentile) is from - per cent to per cent, with a full range of between - per cent and per cent. This distribution is similar across the major sectors. About per cent of customers experience bill impacts over Page -

316 Chapter - General Service Rate Design 0 0 per cent. Just over half of the customers ( per cent) are better off under the MGS Demand Sensitivity as compared to the status quo, which is slightly higher than under the MGS Proposal. The customers with the highest impacts are characterized by low consumption and low load-factor. AMPC notes that it believes that the MGS Demand Sensitivity outcome is not acceptable given that high load factor customers make more efficient use of BC Hydro s system. 0 Comparing the bill impacts in Figure - with that of the MGS Proposal in Figure - highlights that by increasing demand charge cost recovery, the bill impacts of the MGS Proposal are further offset and distributed among customers with differing load factors and consumption levels. For further description of interpreting these bill impact tables, please refer to Appendix H-A of the Application. Figure - F0 Bill Impacts less RRA MGS Demand Sensitivity ( Per Cent Recovery) Red underline indicates bill impact higher than RRA Blue oval indicates typical customers, who are between the 0 th and 0 th percentile by annual consumption and load 0 *Note: Very high sensitivity on low load factor, lower consumption customers due to T kw charge.. Large General Service.. BC Hydro s Large General Service Proposal BC Hydro is proposing a new rate structure for customers who take service under RS xx: a flat demand charge established to recover approximately per cent of 0 In its decision on the 00 RDA, page, the Commission also expressed concern about the detrimental impacts of flattening energy and demand charges on high load factor - high consumption customers. Page -

317 Chapter - General Service Rate Design 0 BC Hydro s demand-related costs attributable to the LGS rate class in the F0 COS study and a flat energy rate established to maintain forecast revenue neutrality based on LGS revenue target calculated using any applicable rate increases arising from the F0 RRA (LGS Proposal). The LGS Proposal would result in the following illustrative charges in F0: a flat energy rate for all kwh of approximately. cents/kwh; a flat demand charge of approximately $. per kw (reflecting BC Hydro s preferred per cent level of cost recovery); and a basic charge of approximately. cents per day. BC Hydro proposes to continue with the current monthly minimum charge definition. These illustrative charges are calculated assuming the F0 rate cap increase of. per cent. Final F0 LGS pricing will be determined by the F0 RRA decision. As set out in section.., BC Hydro proposes a one-time transition on April, 0 from the current LGS rate structure to BC Hydro s proposed LGS rate structure... Background The LGS rate class consists of, accounts with total consumption of 0, GWh (F0). The LGS default rate structures to the class are: 0 A two-part energy rate approved in 00 pursuant to Commission Order No. G-0-0 as an outcome of the 00 LGS Application NSA. The existing LGS energy rate is further described in section...; A three-step inclining block demand charge. Refer to section.. for the background to this demand charge. The existing LGS demand charge is reviewed in section...; and A basic charge and a monthly minimum charge. The current LGS basic charge is. cents/day. The LGS monthly minimum charge is 0 per cent of the highest maximum demand charge billed in any billing period in the on-peak Page -

318 Chapter - General Service Rate Design period of November through March during the immediately preceding eleven billing periods. The relevant Commission Order No. G-0-0 direction concerning the Three-Year Evaluation Report filing is noted in Table -. BC Hydro expands on the Three-Year Evaluation Report in this section as it is relevant to one of the LGS energy rate alternatives (the SQ LGS Simplified Energy Rate described in section..). The scope for the Three-Year Evaluation Report was set through paragraph of the NSA. A summary of the relevant findings of the Three-Year Evaluation Report on these items is: 0 There was no evidence that customers were opening new accounts at an existing premise to benefit by avoiding exposure to the Part energy rate. This finding pertains to the / Pricing-related amendment described in section.; No changes to the PLB were desirable or necessary: 0 In F0, the percentage of bills outside the PLBs was about per cent ( per cent of bills with load below the 0 per cent HBL and per cent of bills with load above the 0 per cent HBL); In the absence of any direct evidence regarding the impact of PLBs on conservation, BC Hydro determined that no changes to the PLBs were warranted. BC Hydro also concluded that changing the PLBs would require significant customer communication, which could be challenging for customers to understand and keep abreast of, given the complexity of the rates; BC Hydro also noted: The NSA is found at Appendix A to Commission Order No. G-0-0; G-0-0_%0BCH-Large-General- Service-Rate_Reasons-NSA.pdf. Page -

319 Chapter - General Service Rate Design BC Hydro encountered significant operational challenges implementing the LGS (and MGS) rates as they are difficult to administer. The billing process is complicated by BC Hydro having to manage exceptions to the customer baselines which is time consuming. In addition, customers have difficulty understanding the rates which adds to the administrative effort; Unaided awareness and understanding of the LGS and MGS rate structures was low; Inquiries and complaints typically concern the baselines when historical consumption may not reflect current or expected operating conditions Existing LGS Energy Rate The existing LGS energy rates are set out in Table -. Table - Existing LGS Energy Rates (F0) Part Energy Rate Tier (cents/kwh) 0. Part Energy Rate Tier (cents/kwh). Part Energy Rate (cents/kwh).0 The overarching objective of the LGS two-part energy rate was to provide LGS customers with an efficient price signal to induce energy conservation. Figure - illustrates the LGS two-part energy rate structure. Page -0

320 Chapter - General Service Rate Design Figure - Illustrated LGS -Part Energy Rate Structure Energy Charge (cents/kwh) Part Part - 0% + 0% LRMCbased Credit LRMCbased Charge Part Tier Part Tier Historical Baseline Monthly Consumption Monthly Consumption (kwh) First,00 kwh of Baseline 0 The mechanism of LGS Part energy rate is the same as described for the MGS rate structure in Section... The LGS Part energy rate differs from MGS as it is not inverted: for LGS customers, the Part Tier energy rate applies to the first,00 kwh of baseline consumption in one month and the Part Tier energy rate applies to all remaining consumption of a customer s monthly baseline. For further illustration of the mechanisms of the LGS two-part energy rate under example customer consumption levels, refer to slides 0 to of the Workshop a presentation at Appendix C-A to the Application. The baseline-based rate structure also led to the following provisions, which were included in the 00 LGS Application NSA to address anticipated customer growth-related concerns and new accounts: Page -

321 Chapter - General Service Rate Design 0 0 Anomaly rule, allowing up to four historic baselines to be adjusted per year. When the lowest consumption month used in baseline calculation is less than 0 per cent of the second lowest month, the lowest month is excluded from baseline calculation; Growth Adjustment or Formulaic growth rule (FGR), allowing baselines to be based on the most recent two years of consumption history in the year (Y) following a year (Y) in which energy consumption exceeded the previous year's (Y0) energy consumption by at least i) 0 per cent or ii),000,000 kwh; Application for Prospective growth adjustment, allowing LGS customers who anticipate significant, permanent increases in energy consumption to apply to BC Hydro for special pricing that may reduce energy rates for three years. "Permanent" means arising from a significant capital investment in plant and "Significant" means increases in energy consumption totaling at least 0 per cent, or,000,000 kwh. To address this provision, BC Hydro applied for and received Commission approval of TS which sets the rules for LGS prospective growth applications for modified LGS pricing. BC Hydro s request with respect to TS is discussed in section..; Application for exemption, allowing LGS customers to apply to the Commission for an exemption on the basis that they are electricity re-sellers under regulated tariffs with conservation rates for their end-use customers. To date, Corix is the only customer that has received such an exemption, for its utility operations at Sun Rivers and Sonoma Pines (these operations would have fallen under the default LGS rates). Refer to section..; and New accounts (/ Pricing), specifying that for new accounts the last per cent of energy consumed in a monthly billing period will be charged at the Part energy rate rather than at the Part Energy rate until a baseline level of consumption is established one year hence. The / Pricing is the subject of a requested order as described in section.. Page -

322 Chapter - General Service Rate Design 0 As discussed in section.., the key issue with the existing LGS two-part energy rate is that it does not provide a clear price signal for conservation and is poorly understood by customers. The result is that minimal conservation savings have been delivered to date, and that BC Hydro cannot count on and does not forecast any conservation savings going forward.... Existing LGS Demand Charge BC Hydro has a three-step inclining block demand charge for the LGS rate class which is the same structure and the same charges as applicable to the MGS rate class set out in Table -. The key issue with the LGS demand structure is the same key issue identified with respect to the MGS demand structure in section...; the LGS three-step inclining block demand charge does not align with BC Hydro s cost to serve LGS customer peak demand.... LGS Customer Characteristics The LGS rate class is diverse. Table - shows that of the site types identified in our F0 billing data, the top 0 site types have per cent of the consumption in the class. In particular, Offices, Non-Food Retail, and Other Commercial stand out as the highest consuming sectors, with per cent of total class consumption. Table - LGS Consumption by Site Type Site Type Percentage of Class Consumption Offices Non-Food Retail Other Commercial Wood - Lumber Food Retail Industrial - Food & Beverages Industrial - Heavy Manufacturing Industrial - Light Manufacturing Transportation Public Hospital Other Page -

323 Chapter - General Service Rate Design Sixty-seven per cent of accounts in the LGS Class are represented by the top 0 site types (Table -). In particular, Offices, Non-Food Retail, and Other Commercial also stand out as the sectors with the largest portion of accounts, at about per cent of all accounts. Table - LGS Accounts by Site Type Site Type Percentage of Accounts Offices Non-Food Retail Other Commercial Food Retail Industrial - Light Manufacturing Industrial - Heavy Manufacturing Hotels Warehouses Industrial - Food & Beverages Public School Other 0 The LGS class is heterogeneous in terms of consumption. Consumption also tends to vary substantively by site type, as shown by the variations of the medians for each site type in Figure -. In terms of annual load factor, about 0 per cent of the class has a load factor between 0 per cent and 0 per cent (see Workshop a presentation materials). Refer to slides to,, and to in particular; the Workshop a presentation is found at Appendix C-A. Page -

324 Chapter - General Service Rate Design Figure - Median LGS Consumption by Site Type 0.. LGS Two-Part Energy Rate Evaluation Reports... Methodology Section... summarizes the coincident LGS and MGS methodologies that support the 0-0 LGS and MGS Evaluation Report and the F0 LGS and MGS Evaluation Report. Refer also to section... for further context and references to the review with stakeholders of the respective reports. In addition to the coincident LGS and MGS evaluation methodologies, the F0 LGS and MGS Evaluation Report employed the following with respect to LGS customers:. Interviews with the key account managers of BC Hydro s largest LGS Industrial, Commercial, Institutional and Government (key) accounts.. Separate regression analysis of a small sample of key accounts: The research question was: Can a response to the introduction of the LGS conservation rate be detected at the site level for a selection of key account customers with energy management initiatives? ; Page -

325 Chapter - General Service Rate Design 0 The research methodology employed customer-level regression modelling of industrial key account LGS customer s energy consumption, using BC Hydro rates and billing data and customer-specific production data; Regression models were run on twelve sites whose customers agreed to share production data with BC Hydro for the purpose of this analysis, thereby ensuring the validity of results through complete data inputs. However, the results are not generalizable to all LGS accounts because only twelve sites were modeled. The method must therefore be considered a case study analysis. For further detail on the methodology, refer to pages, D- and D- of the F0 LGS and MGS Evaluation Report at Appendix C-A of the Application.... Results The LGS two-part energy rate has been evaluated through the 0-0 LGS and MGS Evaluation Report and F0 LGS and MGS Evaluation Report to have delivered lower than expected conservation savings with a declining confidence in the persistence of the savings, as shown in the Table -. Forecast LGS energy savings were 0 GWh/year in F0. Table - Cumulative Net Evaluated Conservation Savings: Gigawatt Hours per Year Year Level of Statistical Significance 0% % 0% Fiscal 0 0 Calendar Calendar 0 0 As set out in the F0 LGS and MGS Evaluation Report: Awareness and demonstrated understanding of the LGS rates was low. About per cent of LGS customers correctly identified the two-part energy rate as applicable across four possible rate structure selections. Larger customers generally have higher unaided awareness than smaller customers; Page -

326 Chapter - General Service Rate Design The top three drivers of energy conservation were: want energy costs to be as low as possible ; right thing to do ; and overall level of electricity prices. The incentive to save electricity built into the rate was cited as a driver of conservation for per cent of LGS customer respondents; and Analysis of key account customers did not detect a statistically significant response to the introduction of the existing LGS two-part energy rate. BC Hydro s expectation was that these customers might be particularly responsive to the LGS rate because they both consume considerable amounts of electricity and have staff dedicated to energy management. 0 As reviewed in the 0-0 LGS and MGS Evaluation Report, regression analysis indicates that awareness of the rate structure was not required for the conservation response estimated for 0 and 0. This finding was one reason BC Hydro concluded in the Three-Year Evaluation Report that consideration be given in a future evaluation to using focus groups or structured interviews to better understand the mechanisms by which customers respond to the two-part energy rate: 0 Results of the key account manager interviews indicate that while most energy managers or finance personnel at key accounts understood the intent of the rates, few people within an organization understood the mechanics; Focus group results confirm that the complexity of the LGS two-part energy rate is a barrier to customer understanding of the price signal and customer ability to act upon it. Part and Part of the current energy rate structure are confusing or flawed in the eyes of customers in several ways: The,00 kwh threshold of Part appeared arbitrary and the declining block structure of Part was regarded as counterintuitive; Customers have particular difficulty understanding the calculation of rolling, historical average monthly HBLs and the value and mechanism of the Part energy charge or credit. Only a few companies had a record of previous Page -

327 Chapter - General Service Rate Design 0 energy bills needed to be able to predict and analyze long term energy consumption patterns. Customers stated that the baseline appeared to draw on too many moving numbers and calculations to be practical in terms of understanding a bill, forecasting, budgeting, or sharing energy conversations with colleagues or management. The perceived complexity of the energy rate structure makes customers disengage from trying to understand the billing process or finding ways to reduce the total bill amount; and Most customers reportedly look at their electricity bills, but this is mainly in regards to total dollar amount; rate structures were rarely mentioned as a motivator for conservation. 0 It is clear from the customer surveys and focus groups that the LGS rate design is overly complex and poorly understood. The finding that awareness of the LGS rate was not required for a conservation response may offer an explanation of why LGS energy savings have diminished over time. Some customers may have responded to the introduction of the LGS rate without understanding its details, either because their total bill went up, or because they expected their bill to go up in anticipation of a pricing change. However, LGS customers may have greater, longer lasting responses if they understand the details of the rate well enough to quantify the benefits they may receive by responding. The low unaided awareness of the LGS rate, and the finding that awareness was not associated with savings, may indicate that overall, the response to the LGS rate was not the type of informed response that would result in substantial investments in energy efficiency... Options Reviewed In BC Hydro s view, there are three LGS rate structure alternatives for consideration in this Application, as developed and reviewed with stakeholders:. A flat energy rate and a flat demand charge; Page -

328 Chapter - General Service Rate Design 0 0. A simplified version of the existing (status quo (SQ)) two-part energy rate (referred to as the SQ LGS Simplified Energy Rate) and a flat demand charge. This alternative includes consideration of ways to simplify the existing two-part energy rate structure, through flattening the Part Tier and Tier energy rates and/or by modifying the provisions that support the two-part rate structure summarized in section...; and. The existing two-part energy rate and the existing three-step inclining block demand charge, for comparison purposes. The reason for carrying forward the SQ LGS Simplified Energy Rate is that in contrast to the MGS rate: the LGS energy rate has resulted in some energy conservation; some LGS customers desire to retain the baseline-based rate structure; and as described below, the LGS flat energy rate is not reflective of the energy LRMC range, so simplification does in this case have some trade-off with losses in efficiency and conservation. In addition, BC Hydro carries forward in this Application an increase to the flat demand charge under alternative () above to recover per cent of demand-related costs allocated to the LGS class, an increase from the existing 0 per cent recovery of such costs under the existing demand charge. The proposed change improves fairness and does so without a loss in efficiency. The LGS rate alternatives brought forward into the 0 RDA from the stakeholder engagement processes are summarized in Table -. Page -

329 Chapter - General Service Rate Design Table - Alternative LGS Pricing (F0) Pricing Element Energy rate (cents/kwh) Demand charge ($/kw) Basic charge (cents/day) Existing LGS Rates Part, T: Part, T: Part : T: T: T: SQ LGS Simplified Energy Rate/Flat Demand (Status Quo demand-related cost recovery ~0%) Flat Part energy rate not modeled under this alternative for F0 but expected = ~. cents/kwh, subject to Part energy rate adjustments; Potential changes to the current LGS-related provisions are considered under this alternative BC Hydro Proposal: Flat Energy/Flat Demand (% demand-related cost recovery) Sensitivity on BC Hydro Proposal (Status Quo demand-related cost recovery: ~0%) The next two sub-sections summarize the processes employed to develop (section...), and review and narrow (section...) the alternatives using stakeholder and other inputs. Details are contained in Appendix C-D.... Alternatives Development The process and approach to LGS rate alternatives development was the same as described for MGS in section... Page -0

330 Chapter - General Service Rate Design... Screening of Alternatives and Stakeholder Engagement The screening, assessment and review of LGS alternatives were similar to that of MGS as set out in section...; accordingly only the differences are noted in this section. There were five phases to the LGS alternatives review. Phase, Initial Internal Screening The LGS initial screening process was identical to the MGS initial screening process. Initial internal screening and feedback from stakeholders reduced the number of alternative LGS rate designs from to the five alternatives shown in Table -. 0 Table - Screened-in LGS Alternatives for Stakeholder Engagement Screened-in LGS Alternative (LS) Flatten Part- Energy Rate Flatten Demand Charge Remove Part Energy Rate No Baseline) LS- Status Quo Energy Status Quo Demand Not applicable LS- Flat Part Energy Status Quo Demand Yes LS- Status Quo Energy Flat Demand Yes LS- Flat Part Energy Flat Demand Yes Yes LS- Flat Part- Energy, No Part Energy Flat Demand Yes Yes Yes Phase, Workshop b: Focus on LGS Energy Rate Structures The categories of alternatives reported in Table - were reviewed with stakeholders at Workshop b. The assessment of alternatives LS- and LS- was illustrative for reasons identical to the MGS rate structure analysis: the energy and demand Refer to Attachment to the Workshop b summary notes, which in turn are part of Attachment to the Workshop a/b consideration memo at Appendix C-A. Page -

331 Chapter - General Service Rate Design 0 components should properly be considered together in evaluating the trade-offs between alternatives. The benefits and drawbacks of alternatives LS- and LS- are as described above for MS- and MS- in section..., with one exception: a drawback of LS- is that the resulting flat energy rate is below the lower end of the LRMC range and not reflective of BC Hydro s LRMC. BC Hydro sought input concerning the alternatives set out in Table -, and in particular whether to retain the baseline and attempt to refine the existing structure to address known issues. Commission staff considered that the merits of the LS- flat energy rate are an open question and that alternatives retaining the baseline should be carried forward. BC Hydro received mixed feedback from LGS customers and stakeholders: The May 0 BOMA and BCFPA/CME/key accounts sessions yielded the following results: of the feedback forms submitted by attendees favoured the LS- LGS flat energy rate with many emphasizing DSM programs as the better vehicle for conservation; three preferred the LS- flatten the energy charges but retain the baseline alternative; and three favoured the existing LS- energy rate. Among customer feedback on Workshop b: 0 One customer, Loblaws, preferred the existing LS- energy rate, which it states provides a clear price signal to conserve electricity; Four customers, TransLink, Panorama Mountain Village Inc., Toby Creek Utility and Viterra preferred the LS- flat energy rate with no baseline, noting the impact of the existing LGS rate on growth and the difficulty budgeting for electricity costs and consequent poor incentive for conservation. Viterra also favoured a LGS TSR-Like Rate targeted to larger LGS customers, as described below; Page -

332 Chapter - General Service Rate Design Three customers, Peterson Commercial Property Management, Vancouver Aquarium and Ivanhoe Cambridge preferred the LS- energy rate, suggesting revisions to or guidelines for baseline determinations, the new account rule (/ Pricing is unfair) and the prospective growth rule (too restrictive). 0 AMPC and CEC, who represent LGS customers, favoured the LS- flat energy rate with a BC Hydro commitment to explore alternative concepts. AMPC considered that the current baseline approach is not sufficiently flexible for larger LGS customers who tend to experience significant changes in operations and conservation investments. AMPC suggests that a LGS TSR-Like Rate similar to RS where baselines can be individually administered would be more appropriate and effective for the largest LGS customers (Viterra also strongly favoured a LGS TSR-Like Rate targeted to larger LGS customers); BCSEA and BCOAPO were inclined to support the LS- flat energy rate subject to exploring the trade-offs between customer understanding and acceptance and economic efficiency. 0 As an outcome of Phase and in response to customer and stakeholder feedback, BC Hydro identified four energy rate alternatives to bring forward for further review and feedback at Workshop b:. SQ LGS Energy Rate;. SQ LGS Simplified Energy Rate aimed at simplifying the LGS energy rate while retaining the baseline;. LGS Flat Energy Rate flattening the LGS energy rate and removing the baseline structure; and This option is discussed in the Phase section. Refer also to section... of the Application for a review of BC Hydro s commitment to explore in RDA Module the appropriateness of segmenting some of the largest LGS customers into a separate rate class for the purpose of defining a rate similar to RS under which consumption baselines would be defined and adjusted annually. Page -

333 Chapter - General Service Rate Design 0 0. LGS TSR-Like Rate segmenting the existing LGS rate class to create a new large LGS rate class with the ability to define and adjust baselines annually similar to RS. Phase, Workshop b: Focus on LGS Energy Rate and Demand Charge Structures BC Hydro did not identify a preferred LGS rate design as an outcome of Phase, and through Workshop b it further reviewed and received feedback on the performance of the four alternatives against the Bonbright rate design criteria:. SQ LGS Energy Rate - BC Hydro reviewed that the SQ LGS Energy Rate is not performing as expected: it is demonstrably complex, difficult to act on, perceived as inhibiting growth and delivering limited conservation. BC Hydro stated at this workshop that it is forecasting zero conservation from the LGS rate for planning purposes. BC Hydro advanced that this alternative should be reviewed for comparison purposes only.. SQ LGS Simplified Energy Rate - BC Hydro set out its view that a flat Part energy rate would be a nominal simplification only as the Part consumption threshold of,00 kwh/month is not material to most LGS customers and would not be expected to materially improve customer understanding and acceptance of the overall energy rates. The central issue is that the SQ LGS Energy Rate and related provisions attempt to strike a balance between sending an efficient price signal and addressing customer concerns with respect to growth and expected bill impacts. As reviewed in Workshop b and as described in section.. of the Workshop a/b Consideration Memo at Appendix C-B of the Application, possible changes to any one provision are unlikely to substantially improve customer understanding and acceptance nor improve the status quo in terms of providing an efficient price signal. Page -

334 Chapter - General Service Rate Design 0 0. LGS Flat Energy Rate - A LGS flat energy rate eliminates all complexity-related issues resulting from the baseline component of the SQ LGS Energy Rate and aligns with how other similarly situated Canadian electric utilities structure larger general service energy rates (predominantly flat). However, there is a trade-off between the customer understanding and acceptance and the economic efficiency criteria because the flat energy rate would not be reflective of LRMC (F0: LGS flat energy rate is. cents/kwh with demand charge cost recovery at per cent, and the lower end of the energy LRMC range is. cents/kwh).. LGS TSR-Like Rate - The overall objective of this alternative would be to induce conservation and potentially address customer understanding and acceptance concerns such as the impact of the SQ LGS Energy Rate on customer growth. BC Hydro reviewed a rate patterned on RS for a segment of large LGS customers with an initial annual CBL determined by historic baseline year(s), allowable adjustments for DSM, plant capacity increase and force majeure, and annual CBLs approved each year by the Commission. A TSR-Like Rate would leverage RS among larger customers that also take Transmission service as it is now well understood and provides a clear LRMC price signal. BC Hydro also had not identified a preferred demand charge structure and brought forward the following alternatives for review at Workshop b:. LGS SQ Demand Charge three-step inclining block. LGS Flat Demand Charge single charge; and. LGS Two-step Inclining Block zero Tier charge and Tier charge. The same review process used for the MGS demand charge alternatives was used for the LGS demand charge alternatives, with similar feedback favoring a flat demand charge. For example, AMPC commented at Workshop b that a flat Page -

335 Chapter - General Service Rate Design 0 0 demand charge would better reflect cost causation and the rate design practice of other utilities, which either have flat or two step demand charges. At Workshop b BC Hydro reviewed that a flat demand charge would generally offset the bill impacts of flattening the LGS energy rate, but given the current level of the demand charge the highest bill impacts tended toward customers with high load factors and high consumption, in the range of per cent to per cent in F0 net of RRA rate increases. BC Hydro reviewed that the offsetting effect on bill impacts from the two-step inclining block demand charge alternative would be somewhat lower in comparison to the offsetting effect from a flat demand charge. The issue of LGS demand charge cost recovery also arose at Workshop b. On the basis of the F0 COS, the LGS demand charge recovers about 0 per cent of demand-related costs assigned to the LGS class. Commission staff, AMPC and BCOAPO suggested that BC Hydro should consider what level of demand charge collection would best meet BC Hydro s rate design objectives. AMPC questioned whether higher bill impacts to high load factor and high consumption customers would be fair and acceptable given that such customers make more efficient use of BC Hydro s system. On the basis of the Bonbright fairness criterion, AMPC recommended that BC Hydro consider an increase in the LGS demand charge to recover demand-related costs at a level consistent with customers taking service under RS ; this would result in an increase from 0 per cent to per cent demand-related cost recovery. As an outcome of Phase BC Hydro identified:. The LGS Flat Energy rate and LGS Flat Demand Charge are its preferred LGS rate structures to carry forward to the 0 RDA, which is supported by many LGS customers and organizations representing such customers, and most other stakeholders; Page -

336 Chapter - General Service Rate Design 0 0. The SQ LGS Energy Rate should be carried forward to the 0 RDA for comparison purposes only;. The SQ LGS Simplified Energy Rate should be carried forward to the 0 RDA to allow further consideration by the Commission and among stakeholders of whether the price signal or customer understanding and acceptance of the price signal could be improved to any material and certain degree. BC Hydro also noted there are LGS customers such as Thrifty Foods that prefer the SQ LGS Energy Rate to the LGS Flat Energy Rate but with suggested changes (such as amendment of the / Pricing). While BC Hydro set out considerations for a LGS TSR-Like Rate as a potential rate design for very high consumption LGS customers, it noted that its consideration of a LGS TSR-Like Rate and a segmented LGS class would be proposed only in the overall context of a LGS Flat Energy Rate applicable to the remaining majority of LGS customers. With the support of stakeholders, notably AMPC, a LGS TSR-Like Rate will be explored in RDA Module. There was a general consensus among stakeholders that the LGS Flat Demand Charge is superior to the LGS SQ Demand Charge and the LGS Two-Step Inclining Block Demand Charge. Accordingly, BC Hydro did not analyze the LGS Two-Step Inclining Block Demand Charge any further and the LGS SQ Demand Charge is advanced for comparison purposes only. Based on stakeholder feedback, BC Hydro carried forward to Phase a review of an increase in the LGS demand charge recovery of demand-related costs. Phase, Workshop : Focus on LGS Demand Charge Cost Recovery BC Hydro undertook further jurisdictional assessment to determine if there was a readily identifiable utility practice in terms of demand charge cost recovery. As reported at Workshop a, the surveyed Canadian electric utilities of SaskPower, Manitoba Hydro, Hydro Quebec, Nova Scotia Power, New Brunswick Power, ATCO Page -

337 Chapter - General Service Rate Design 0 YECL and FortisBC either have a flat demand charge or an inclining two step demand charge with the first step set to $0. BC Hydro was unable to obtain information concerning demand cost recovery, except to note that the Newfoundland Power seasonal demand charge recovers about per cent of demand-related costs from its large industrial customer segment. At Workshop BC Hydro presented the results of an increase in LGS demand charge recovery of demand costs from about 0 per cent to per cent, a level consistent with RS demand cost recovery. As shown by comparing Figure -0 and Figure -, reproduced from the Workshop presentation found at Appendix C-B to the Application, an increase in demand cost recovery will improve fairness in cost allocation and will further offset the impacts of energy rate flattening and dampen the range of bill impact variation among LGS customers across size and load factor. Figure -0 F0 Bill Impacts less RRA for LGS Flat Energy and Flat Demand, Demand Cost Recovery = ~0 Per Cent Load Factor * Annual Consumption kwh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owest kw Highest kw Red font indicates bill impact higher than RRA Oval indicates typical customers, who are between the 0 th and 0 th percentile by annual consumption and load factor. Page -

338 Chapter - General Service Rate Design Figure - F0 Bill Impacts less RRA for LGS Flat Energy and Flat Demand, Demand Cost Recovery = ~ Per Cent Annual Consumption kwh Highest kw Load Factor 0.% 00,000 00,000 00,000 00,000,000,000,00,000,00,000,00,000,00,000,000,000,00,000,00,000,00,000,00,000,000,000,00,000,00,000 0% 0.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% 0% -.% 0.% -0.% -0.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.0% -.0% -.0% 0% -.%.%.% 0.% 0.% -0.% -0.% -0.% -0.% -0.% -0.% -0.% -0.% -.0% -.0% -.0% -.% 0% -0.% -.%.%.%.0% 0.% 0.% 0.% 0.% 0.0% -0.% -0.% -0.% -0.% -0.% -0.% -0.% 0% -.0% -.%.%.%.%.%.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0% -.% -.% -.%.%.%.%.%.%.%.0% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0% -.% -.% -.% 0.%.%.%.%.%.%.%.%.%.0%.0% 0.% 0.% 0.% 0% -.% -.% -.% -0.%.%.%.%.%.%.%.%.%.%.%.%.%.% 0% -.% -.% -.% -.0% 0.%.%.%.%.0%.%.%.%.%.%.%.%.% Lowest kw Red font indicates bill impact higher than RRA Oval indicates typical customers, who are between the 0 th and 0 th percentile by annual consumption and load factor. 0 0 BC Hydro favours increasing the LGS demand charge cost recovery level. AMPC strongly supports increasing the LGS demand charge recovery of demand-related costs. BCSEA supports such a change on the basis that the increase will blunt bill impacts of flattening the LGS energy charge. Given that this topic was only discussed at Workshop at the end of the stakeholder engagement process, BC Hydro brought forward the LGS Flat Demand Charge under both demand charge cost recovery scenarios (status quo 0 per cent and preferred per cent). Phase, Workshop a/b Consideration Memo: LGS Demand Ratchet BC Hydro prefers to maintain the level of the LGS demand ratchet at the existing level of 0 per cent of peak monthly demand given that the level of the demand ratchet is not a major issue. Refer to section... regarding the discussion of the MGS demand ratchet... BC Hydro Proposal and Stakeholder Engagement The LGS Proposal is supported by AMPC (which represents some LGS customers; refer to the AMPC support letter at Appendix C-E) Canada West Ski Areas Association, and the following LGS customers who sent BC Hydro support letters: Shape Property Management (Shape), Whistler Blackcomb, Ivanhoe Cambridge, Colliers International, Cadillac Fairview Corporation, Triovest Realty Advisors (B.C.) Page -

339 Chapter - General Service Rate Design 0 0 Inc. and Gateway Casinos & Entertainment Limited (Gateway). Refer to the support letters at Appendix C-E. Other LGS customer support conveyed through the 0 RDA stakeholder engagement process is referenced in section LGS Flat Energy Rate BC Hydro s preferred LGS Flat Energy Rate prioritizes customer understanding and acceptance by significantly simplifying the SQ LGS Energy Rate and aligning it with how other similarly situated Canadian electric utilities structure general service energy rates. BC Hydro notes the participant concern that the resulting flat energy rate under its preferred alternative is not reflective of LRMC. BC Hydro acknowledges that unlike with the proposed MGS flat energy rate, there is a trade-off with the LGS Flat Energy Rate. BC Hydro prioritizes the Bonbright customer understanding and acceptance and fairness criteria at this time above the economic efficiency criteria for the reasons set out in sections..,.. and... of the Application. BC Hydro also notes two additional considerations: First, maintaining the SQ LGS Energy Rate would make improving the design and cost recovery of the LGS demand charge untenable in light of the bill impacts which makes some form of simplification of the design a priority; and second, the gains in simplification in moving to a flat energy rate appear to be worth the apparent small loss in economic efficiency in the status quo LGS rate design. BC Hydro notes and agrees with the RDA workshop participants that questioned the SQ LGS Simplified Energy Rate: Commission staff questioned if the SQ LGS Simplified Energy Rate would address the real problems of the SQ LGS Energy Rate other than nominal simplification; AMPC remarked that changes to the provisions other than elimination of the baseline will only make matters worse, noting for example that the concept of a Page -0

340 Chapter - General Service Rate Design 0 PLB for the LGS rate class is too complex and that none of the administratively burdensome procedures such as the FGR or anomaly rules are necessary if the LGS rate is simplified so as to remove the baseline structure for the majority of LGS customers; CEC suggested that modifying the baseline provisions under SQ LGS Simplified Energy Rate would only add complication to the SQ LGS Energy Rate; BCOAPO commented that flattening the Part energy rate under the SQ LGS Simplified Energy Rate would only be acceptable if it was considered as part of an overall package of changes aimed at improving customer acceptance and understanding of the rate design, but if it was not the case that the alternative would be understandable then BCOAPO was of the view that there is little point in pursing it further; BCSEA was not convinced that either flattening the Part LGS energy rate or modifying baseline provisions would increase conservation or simplify the rate structure enough to overcome the complexity problems; and FNEMC would support flattening the Part energy rate and modifying provisions as necessary to possibly improve customer understanding and acceptance LGS Flat Demand Charge and Per Cent Recovery of Demand-related Costs A flat demand charge for the LGS class: Improves fairness by aligning cost recovery with the cost to serve a LGS customer s peak demand, which is generally flat on a $/kw basis; Simplifies the rate structure and will improve customer understanding and acceptance. As compared to the existing three-step inclining block structure, a Page -

341 Chapter - General Service Rate Design flat LGS demand charge will also better reflect the rate design practice of other utilities, which either have flat or two step demand charges; and Generally offsets bill impacts associated with BC Hydro s preferred LGS Flat Energy Rate (and to a greater extent than a two-step inclining block demand charge structure). 0 0 Increasing the level of demand-cost recovery through the flat demand charge from ~0 per cent to per cent will improve fairness in cost allocation and will further offset the impacts of energy rate flattening and dampen the range of bill impact variation among LGS customers across size and load factor. This result is illustrated in Figure -. Bill impacts are generally low ( per cent to per cent) and evenly distributed across LGS customer consumption and load factor.... Illustrative Simulations While BC Hydro is filing for a LGS rate structure change in F0 (effective April, 0), the simulation of LGS rate estimates and bill impacts assumes a one-time transition in rate structure in F0 for illustrative purposes. The final LGS rates in F0 will be determined by both the 0 RDA and the F0 RRA Commission decisions. Table -0 lists the key calculation features of the alternative rate structures, and the rates estimated for F0. All F0 rates are modelled to recover the same target revenue of $ million given a consumption forecast of, GWh and. GW of billed demand. Further details about the modelling calculations are shown in Appendix H-A. Page -

342 Chapter - General Service Rate Design Table -0 LGS Rate estimates given rate structure transition in F0 LGS F0 F0 Status Quo F0 BC Hydro Proposal (% Demand Recovery) F0 Sensitivity (0% Demand Recovery) Basic cents/day.... Demand $/kw T T.0. T Energy cents/kwh T 0.. T.. Part Minimum.0. Key calculation features of alternatives to Status Quo 0. Flat. Flat. Flat. Flat Flat Energy Rate Flat Demand Charge Basic Charge is increased by RRA Revenue recovered from demand portion of the rate in F0 is escalated by a factor of.0 from status quo, to yield a projected cost recovery from the demand portion of the rate of per cent. Flat Energy Rate Flat Demand Charge Basic Charge is increased by RRA Revenue recovered from demand portion of the rate is same as that of Status Quo... Proposed LGS Rate Structure ( Per Cent Demand cost recovery) Table - shows the difference in the annual bills under the proposed rate structure as compared to the status quo for a typical LGS customer with consumption of,0 kwh per year and billed demand kw each month, which is near the median in terms of consumption and load factor. Under the proposed structure, such Page -

343 Chapter - General Service Rate Design customers tend to have similar bills as under the status quo rate structure (about per cent higher) if consumption stays at about baseline over time. Due to the elimination of the baseline, the amount of benefits would be slightly lower for customers who experienced a reduction in consumption, due to removal of credits at the Part energy rate, and higher for customers who experienced an increase in consumption, due to avoidance of charges at Part energy rate. Table - F0 Illustrative Customer Bill BC Hydro LGS Proposal (Demand Per Cent Recovery) Customer Scenario Consume at baseline +% from baseline -% from baseline Demand Charge ($) Energy Charge ($) Basic Charge ($) Total Bill ($) SQ Bill ($) Variance ($),0,,0,, (%),0,,0, - (-%),0,,0,0, (%) 0 The bill impact statistic compares the change in annual bills of each customer account from F0 to F0, given identical consumption in energy and demand and a baseline that is equal to consumption: 0 Under the status quo rate, the bill impact is at about the RRA rate increase ( per cent) for all LGS customers; Under the LGS Proposal, the 0 th to 0 th percentile bill impact for F0 ranges from per cent to per cent, with the full range between - per cent to + per cent. This distribution is similar across the major sectors. About. per cent of customer accounts are expected to experience bill impacts over 0 per cent. Of these. per cent of customers, the highest bill impact in terms of nominal dollars is about $,000 (a bill impact of 0 per cent). Overall, about per cent of LGS customer accounts are better off under the LGS Proposal when compared with the status quo. Page -

344 Chapter - General Service Rate Design Figure - shows the impact of rate structure change in the transition year, net of RRA rate increases under BC Hydro s LGS rate proposal. The distribution shows that the typical customers (as shown by the oval) are slightly impacted. The larger consuming customers tend to have minimal impacts during the transition, while the low load factor, and low consumption tend to see the biggest impacts due to charges on the first kw of demand. Although more customer accounts will have higher bill impacts than the LGS Demand Sensitivity described below, the impact distribution shows that the bills are much less sensitive to changes in consumption and load factor (and therefore more predictable). 0 Figure - F0 Bill Impacts less RRA BC Hydro LGS Proposal (Demand Per cent Recovery) Red font indicates bill impact higher than RRA Oval indicates typical customers, who are between the 0 th and 0 th percentile by annual consumption and load factor. *Note: Very high sensitivity on low load factor, lower consumption customers due to T kw charge.... LGS Demand Sensitivity Rate Structure (0 Per Cent Recovery) As a comparison, BC Hydro modelled a LGS Demand Sensitivity where demand cost recovery is maintained at 0 per cent (same as status quo): 0 About per cent of customer accounts are better off than under the status quo. Under this scenario, the 0 th to 0 th percentile bill impact for F0 ranges from per cent to per cent, with the full range between - per cent to + per cent. This trend is similar across the major sectors. About 0. per cent of customers experience bill impacts over 0 per cent. Of these customers (the 0. per cent), the highest bill impact in terms of dollars is about $,000 (a bill Page -

345 Chapter - General Service Rate Design impact of 0 per cent). As with the LGS Proposal, customers experiencing high bill impacts are characterized by low consumption and low load factor; Comparing the LGS Demand Sensitivity (Figure -) with the LGS Proposal (Figure -), the LGS Demand Sensitivity demonstrates that high load factor and high consumption customers are worse off. There is also much higher sensitivity in bill impacts, as shown by the large changes in bill impacts with slight variations in load factors or consumption. 0 AMPC argues that the LGS Demand Sensitivity outcome is not acceptable given that high load factor customers make more efficient use of BC Hydro s system. By comparison, Figure - highlights that by increasing demand charge cost recovery, the bill impacts of BC Hydro s LGS rate structure proposal are further offset and distributed among customers with differing load factors and consumption levels. For further description of interpreting these bill impact tables, please refer to Appendix H-A of the Application. Figure - F0 Bill Impacts less RRA LGS Demand Sensitivity (0 Per Cent Recovery) Red font indicates bill impact higher than RRA Oval indicates typical customers, who are between the 0 th and 0 th percentile by annual consumption and load factor. 0 *Note: Very high sensitivity on low load factor, lower consumption customers due to T kw charge.. Transition Analysis for Medium General Service and Large General Service Proposals BC Hydro proposes one-step transitions for both the MGS Proposal and the LGS Proposal rate on April, 0. Page -

346 Chapter - General Service Rate Design 0 0 Rate design phase-in is typically implemented to soften the effect of implementation where adverse bill impacts would be imposed on specific customer segments (such as the largest per cent of customers). BC Hydro understands that the bill impact test has in the past been used to slow down the transition to rate structures that would improve future economic efficiency. The benefits of more efficient rate design is that they would encourage efficient customer behavior that would lower customer bills in the future and it made sense that rates could transition to being more efficient to mitigate severe bill impacts on a few customers for the benefit of all customers. As part of the 0 RDA, BC Hydro is proposing to redesign rates that unfairly allocate fixed costs among customers and have been doing so for some time now. Delays or lengthy transitions lengthen the time that some customers are required to subsidize others. As part of and subsequent to Workshop, BC Hydro assessed the need for phase-in periods for its preferred MGS and LGS rates. Please refer to section and Attachment of the Workshop a/b consideration memo at Appendix C-B for further analysis... Medium General Service BC Hydro modelled a three year phase-in for the MGS Proposal as follows:. Revenue to be recovered from demand is determined by escalating the demand revenue recovered by the existing MGS rate by one-third of the increase needed to move from per cent cost recovery to the final cost recovery of per cent;. Demand tiers are priced to move each tier towards a flat rate in about one-third increments, with Tier and Tier merging from the start; and. The energy rates are determined so that the ratio between Part Tier and Tier equals.0 in three years. Page -

347 Chapter - General Service Rate Design A three-year phase-in period for BC Hydro s preferred MGS rate (F0-F0) would have only minor mitigation of bill impacts as compared to no phase-in (i.e., one-time F0 implementation) impacts: Under a three-year phase-in, customers who experience adverse bill impacts greater than 0 per cent are limited to about 00 accounts with less than about 0 MWh/year of annual consumption; and For the majority of MGS customers the three-year phase-in will delay the offsetting effect of the flat energy rate, flat demand charge and increasing demand cost recovery. 0 Refer to Figure - and Figure -. Figure - No MGS Proposed Rates Phase-In -0.% 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 00,000 0,000 0,000 0,000 0,000 0,000 0,000 0% 0.%.%.0%.% -.% -.% -.% -.% -.% -0.% -.% -.% -.% -.% -.% -.% -.% 0%.%.%.%.%.0% -.% -.% -.0% -0.% -0.% -.0% -.% -.% -.% -.% -.% -.% 0%.%.%.%.%.% -.% -.% -.0% 0.%.%.0%.%.%.%.%.%.% 0%.%.%.%.%.% -0.% -.% -0.%.%.%.%.%.%.%.0%.%.0% 0% -0.% -0.% -0.% -0.% -0.% -0.% -.% -0.%.%.%.%.%.%.%.%.%.% 0% -.% -.% -.% -.% -.% -.% -.% 0.%.%.%.%.%.%.%.%.%.% 0% -.% -.% -.% -.% -.% -.% -.% 0.%.%.%.%.%.%.0%.%.%.% 0% -.0% -.% -.% -.% -.% -.% -.% -.%.%.%.%.%.%.%.%.% 0.% 0% -.% -.% -.% -.% -.% -.% -.% -.%.%.%.%.%.%.%.%.% 0.% Figure - Three Year MGS Proposed Rates Phase-In.% 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 00,000 0,000 0,000 0,000 0,000 0,000 0,000 0%.%.%.%.%.%.% -.% -.% -.% -.% -.% -.% -.% -.0% -.% -.% -.% 0%.%.%.%.%.%.%.%.%.%.%.%.% 0.% -.% -.% -.% -.% 0%.%.%.%.%.%.%.%.%.%.%.%.%.%.%.%.%.% 0%.%.%.%.%.%.%.%.%.%.%.%.0%.%.%.%.%.0% 0% 0.% 0.% 0.% 0.% 0.% 0.% 0.%.%.%.%.%.%.%.%.%.%.% 0% 0.% 0.% 0.% 0.% 0.% 0.% 0.%.%.%.%.%.%.%.%.%.0%.% 0% 0.% -0.% -0.% -0.% -0.% -0.% -0.%.%.%.%.%.0%.%.0%.%.%.% 0% -0.% -0.% -0.% -0.% -0.% -0.% -0.%.%.%.%.%.%.%.%.%.%.0% 0% -0.% -0.% -0.% -0.% -0.% -0.% -0.%.0%.%.%.0%.%.%.%.%.%.% The three-year phase-in is highly complex. While there are some softening of bill impacts for high load factor, high consuming customers, the key trade-off is an expected decline in customer understanding and bill predictability. Page -

348 Chapter - General Service Rate Design 0.. Large General Service BC Hydro modelled a three year phase-in for the LGS Proposal as follows:. Revenue to be recovered from demand is determined by escalating the demand revenue recovered by the existing LGS rate by one-third of the increase needed to move from 0 per cent cost recovery to the final cost recovery of per cent;. Demand tiers are priced to achieve a flat rate within three years; and. The energy charges are determined so that the ratio between Part Tier and Tier equals.0 in three years. As depicted in Figure - in section..., the effects of combining the changes in energy and demand charges offset and soften the bill impacts to any set of LGS customers. For most LGS customers a three year phase-in yields higher bill impacts for a longer period of time than no-phase-in. The key reason is that the phase-in delays the benefits of the rate design changes. With a three year phase-in, BC Hydro estimates that about,00 accounts (just under half of all LGS accounts) will experience bill impacts of 0 per cent or greater; impacted customers include typical customers. Refer Figure - and Figure -. Figure - No LGS Preferred Rates Phase-In.% 0,000 00,000 00,000 00,000,000,000,00,000,00,000,00,000,00,000,000,000,00,000,00,000,00,000,00,000,000,000,00,000,00,000 0%.%.%.%.%.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0.% 0% -.%.%.%.%.%.%.%.%.%.%.%.%.%.%.0%.0%.0% 0% -.%.%.%.%.%.%.%.%.%.%.%.%.%.0%.0%.0%.% 0% -.0%.%.%.%.0%.%.%.%.%.0%.%.%.%.%.%.%.% 0% -.0% -.%.%.%.%.%.0%.%.%.%.%.%.%.%.%.%.% 0% -.% -.%.%.%.%.%.%.%.%.0%.%.%.%.%.%.%.% 0% -.% -.% 0.%.%.%.%.%.%.%.%.%.%.0%.0%.%.%.% 0% -.% -.% -.%.%.%.%.%.%.%.%.%.%.%.%.%.%.% 0% -.% -0.% -.%.0%.%.%.%.%.0%.%.%.%.%.%.%.%.% Page -

349 Chapter - General Service Rate Design Figure - Three Year LGS Preferred Rates Phase-In -.% 0,000 00,000 00,000 00,000,000,000,00,000,00,000,00,000,00,000,000,000,00,000,00,000,00,000,00,000,000,000,00,000,00,000 0%.%.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% -.% 0%.%.%.%.%.% 0.0% -0.% -.% -.0% -.% -.% -.0% -.% -.% -.% -.% -.% 0%.%.0%.%.%.0%.%.%.%.0% 0.% 0.% -0.% -0.% -0.% -.0% -.% -.% 0% -.%.%.% 0.%.%.0%.%.%.%.%.%.%.%.% 0.% 0.% 0.% 0% -.%.%.%.%.%.%.%.%.%.%.%.%.%.%.%.0%.% 0% -.%.%.%.%.%.%.%.%.%.%.%.%.%.%.%.0%.% 0% -.%.%.%.%.% 0.%.%.%.%.%.%.%.%.%.%.%.% 0% -.%.%.0% 0.%.%.%.%.%.%.%.%.%.%.%.%.%.% 0% -.%.%.%.%.%.% 0.%.%.%.%.0%.%.0%.%.%.%.% 0 0 A phase-in for the proposed LGS rates would delay the offsetting benefits and result in the opposite effect of what a phase-in is intended to accomplish.. Requested Order for the LGS and MGS New Account Rule BC Hydro requests a final order effective January, 0 approving a change in the pricing for new accounts that do not have a HBL on RS xx or RS xx from per cent of monthly consumption billed at the Part energy rate and per cent of monthly consumption at the Part energy rate (/ Pricing) to 00 per cent of the monthly consumption billed at the Part energy rate (00 per cent Part Pricing). The draft requested order is provided in Appendix A-A, and the revised clean and black-lined tariff pages for RS xx and RS xx are provided in Appendix F-A. The LGS and MGS RS xx and RS xx Special Conditions require that new accounts be established under / Pricing for the first year prior to the establishment of a baseline. As discussed in section..., the / Pricing was agreed on as part of the 00 LGS Application NSA and approved by the Commission. In the 00 LGS Application, BC Hydro proposed 0 per cent of monthly consumption billed at the Part energy rate and 0 per cent of monthly consumption billed at the Part energy rate. The 0 per cent was increased to per cent during the LGS NSA. This was to reduce the concerns expressed by some stakeholders that existing customers with growing load might open new accounts to have their HBLs reset and to obtain bill savings. Page -0

350 Chapter - General Service Rate Design 0 0 BC Hydro s business practices do not allow the opening of new accounts except under specific circumstances which make gaming difficult and BC Hydro is not aware of gaming being an issue. A number of LGS and MGS customers have complained formally to the Commission and/or informally to BC Hydro about the / Pricing. For example, the / Pricing applies to new accounts (e.g., those opened as a result of a legal change in ownership) that have taken over existing businesses and not changed operations. One of the Commission-related complaints was initiated by Sobeys West Inc. (Sobeys). The result was Commission Order No. G-- which did not revise the new account rule; instead under section of the UCA, BC Hydro was to waive the difference in the amount Sobeys was to be billed under the new account rule as compared to the acquired asset s baseline. There have been a number of other new account-related complaints. BC Hydro proposes that new MGS and LGS accounts pay 00 per cent Part Pricing. This pricing recovers BC Hydro s embedded costs and therefore does not harm other ratepayers. Although new accounts will not be exposed to the LRMC price signal, this will be for a one year period only. BC Hydro s proposal is supported by the following customers who sent in support letters: Shape; Gateway; and The Bay Centre. Refer to copies of the support letters at Appendix C-E. In addition, Ivanhoe Cambridge and Thrifty Foods raised concerns with the / Pricing at Workshops b and b. There would be no new account rule if the Commission approves BC Hydro s proposed LGS and MGS rates effective April, 0; in other words, if the Commission approves BC Hydro s proposed LGS and MGS rates effective April, 0, the resulting order supplants the order concerning the / Pricing. See the BC Hydro responses to CEC IRs.. and.., Exhibit B- in the LGS Application proceeding; B-_BCHydro_IR_-to-BCUC.pdf. Other examples of / Pricing complaints are: Strata KAS0 s complaint to the Commission (refer to the Commission s letter of July, 0, Log No. ); and City of Vernon (informal, to BC Hydro). Page -

351 Chapter - General Service Rate Design. Three Matters Associated with Medium General Service and Large General Service Proposals BC Hydro s proposals for MGS and LGS rates raise three related matters: There would be no need for TS. Refer to section..; There would be no need for the existing LGS and MGS control groups used to help evaluate the conservation effects of the existing MGS and LGS rates. Refer to section..; There would be no need for RS xx which exempts Corix from the LGS two-part rate. See section Tariff Supplement No. BC Hydro requests the termination of TS, which are the rules for LGS prospective growth applications for modified LGS pricing, and the transfer of any remaining LGS customers on TS modified LGS pricing to RS xx effective April, 0. Refer to a copy of the requested order found at Appendix A-D of the Application. As noted in section..., TS was developed to address the prospective growth adjustment provision in the LGS NSA. It allows eligible customers with prospective growth who apply to BC Hydro to be billed under modified LGS pricing. The Commission approved TS by Order Nos. G-- and G-0-. TS will not be required if the Commission approves BC Hydro s proposal for the LGS rate structure as set out in section..... Medium General Service and Large General Service Control Groups BC Hydro requests an order dissolving the LGS and MGS control groups and related amendments to RS xx. Refer to a copy of the order found at Appendix A-D, and to the black-lined copies of the current RS xx showing the proposed changes at Appendix F-E for illustrative purposes. G--_BCH-Amended-TS-No.pdf. G--_BCH-Amended-TS-No.pdf. Page -

352 Chapter - General Service Rate Design 0 0 In its 00 LGS Application, BC Hydro proposed that randomly selected MGS and LGS accounts remain on the pre-existing general service rate structure. These MGS and LGS control groups were established to provide a method to help isolate the effects of the LGS and MGS rates from other factors that affect consumption. The control groups will not be required if the Commission approves BC Hydro s proposed MGS and LGS rate structures as described in sections.. and... There are 0 LGS and MGS control accounts currently served on RS xx. These accounts would be transferred to the new LGS and MGS rates on April, 0 if the Commission approves BC Hydro s proposed MGS and LGS rates... Corix and Rate Schedule xx As noted in section..., Corix applied for an exemption from the LGS two-part energy rate. The Commission granted Corix s request for an exemption from the LGS two-part rate by Commission Order No. G--, 0 and ordered Corix and BC Hydro to negotiate a flat rate to be filed with the Commission. As a result of the negotiation with Corix, BC Hydro filed RS xx in compliance with Commission Order No. G--. BC Hydro s proposal to replace the LGS two-part rate with a flat rate removes the need for having an exempt rate. Thus, BC Hydro contacted Corix to determine if it had any objection to BC Hydro applying for the termination of RS xx and the transfer of Corix s Sun Rivers and Sonoma Pines accounts to the default LGS rate as part of BC Hydro s proposal for the LGS rates. The transfer would only occur if the Commission approves BC Hydro s LGS rate proposal identified in section... On September, 0 Corix confirmed that it is not opposed to BC Hydro s applying for the termination of RS xx and the transfer of Corix s Sun Rivers and Sun Pines accounts to the default LGS rate. Refer to BC Hydro s requested order at Appendix A-D. 0 Reasons.pdf. Page -

353 Chapter - General Service Rate Design. Rate Schedule... Background RS (IPP Station Service) was implemented in October 00, and is available to IPP customers served at distribution voltage for forced outages, scheduled maintenance requirements and black-start re-energization of generators: 0 Energy is provided on an as available basis at Mid-C market rates; There is no demand charge associated with RS because service is non-firm; and There is a monthly minimum charge currently set at $. (F0) to recover costs incurred by BC Hydro under RS. BC Hydro would continue with its existing practice of applying RRA rate increases to the RS monthly minimum charge of $. (F0) BC Hydro Proposal and Stakeholder Engagement No IPP customer expressed any concern with this rate. BC Hydro did not specifically discuss RS with stakeholders. However, as set out in section.. of the Application, RS - which is available to IPP customers served at transmission voltage for forced outages, scheduled maintenance requirements and black-start re-energization of generators, and has identical energy rate pricing and monthly minimum charge was discussed at Workshops and 0. The only issue identified concerning RS is whether the non-firm energy rate pricing should be aligned with another non-firm rate, RS 0 like RS, RS is based on Mid-C market prices whereas RS 0 is set to the prevailing RS Tier rate. At Workshop 0, BC Hydro provided its view that non-firm energy sold to IPPs should be priced off the Mid-C market because non-firm energy acquired from IPPs is typically priced at Mid-C, thus ensuring that non-firm energy is consistently valued whether it flows from BC Hydro to the IPP customer or from the IPP service provider to BC Hydro. Page -

354 Chapter Transmission Service Rate Design

355 Chapter - Transmission Service Rate Design Table of Contents. Introduction and Structure of Chapter Summary of BC Hydro Proposals Summary of Stakeholder Engagement and Other Inputs Chapter Structure Rate Schedule : Default Transmission Service Stepped Rate Commission Jurisdiction and Scope of RS Review Tier and Tier Energy Rates: Proposed Pricing Principles for F0 to F Background Options Reviewed BC Hydro Proposal and Stakeholder Engagement Revenue Neutrality Options Reviewed BC Hydro Proposal and Stakeholder Engagement Demand Charge Options Reviewed BC Hydro Proposal and Stakeholder Engagement Monthly Minimum Charge Existing and Potential Transmission Service Rate Options Existing Rate Option: Rate Schedule Background BC Hydro Proposal and Stakeholder Engagement Existing Rate Options: Rate Schedule Background BC Hydro Proposal and Stakeholder Engagement Potential Rate Options Rejected by BC Hydro: Retail Access and Real Timing Pricing Retail Access Real Time Pricing Proposed Freshet Rate Pilot Key Objectives and System Context... - Page -i

356 Chapter - Transmission Service Rate Design... Market Prices and the Tier Rate Overview of the Proposed Rate Benefits of the Rate Types of Incremental Load and Load Shifting Evaluation Criteria and Reporting Two Existing Self-Generation Rates BC Hydro Proposal Rate Schedule : IPP Station Service Background BC Hydro Proposal and Stakeholder Engagement Rate Schedule 0: Standby and Maintenance Background BC Hydro Proposal and Stakeholder Engagement Rate Schedule : Rate for Exempt Customers Background and Commission Jurisdiction BC Hydro Proposal and Stakeholder Engagement... - List of Figures Figure - F0 Transmission Service Voltage Energy Sales... - Figure - System Inflows... - Figure - Five-Year Average of Mid-C Market Prices (00 0) Updated with 0 Prices to the End of July Figure - HLH Differentials between Tier Rate and $CDN Mid-C Price... - Figure - LLH Differentials between Tier Rate and $CDN Mid-C Price... - Figure - Gains from an Incremental MW of Load Over Freshet Period Page -ii

357 Chapter - Transmission Service Rate Design List of Tables Table - Existing RS Rates (F0)... - Table - Inflation Adjusted Range in Energy LRMC... - Table - F0 to F0 Pricing Principle Options Table - Existing RS Rates (F0)... - Page -iii

358 Chapter - Transmission Service Rate Design 0. Introduction and Structure of Chapter This Chapter outlines BC Hydro s proposals for Transmission Service rates. As described in sections. of the Application, Transmission Service customers are served at transmission voltage level ( kv and above). There are eight existing Transmission Service rate schedules: RS (Stepped Rate); RS (TOU Rate); RS (Rate for Exempt Customers); RS (Modified Demand); RS (IPP Station Service); RS 0 (Standby and Maintenance Supply); RS (Shore Power Service); and RS 0, the PPA between BC Hydro and FortisBC discussed in sections. and. of the Application. Figure - sets out the F0 Transmission Service voltage energy sales; RS (A and B) represented about per cent of total Transmission Service voltage sales. Figure - F0 Transmission Service Voltage Energy Sales RS % RS 0 % RS % RS A % RS B 0% As described in Table - below, RS A is the flat energy rate for new accounts and customers that do not have a CBL, while RS B is the stepped rate (Tier and Tier pricing). F0 RS 0 sales were 0 GWh or about 0. per cent of total Transmission Service voltage sales, and F0 RS sales were GWh. There were no sales under RS as this rate was approved by the Commission on June, 0; refer to section. of the Application. Page -